Fri May 6, 2011 6:20pm GMT
* Projects hampered by lack of work force, equipment
* Sees global inflation as risk factor for ore market
* Sees iron ore price stability through end of September
* Continues to see acquisitions in "opportunistic" way (Recasts with outlook on risks; adds comments, details on record profit, byline; previous dateline SAO PAULO)
SAO PAULO/RIO DE JANEIRO, May 6 (Reuters) - Brazil's Vale, the world's biggest producer of iron ore, could face higher production costs and delays in capital spending as it lacks equipment and a qualified workforce, and raw materials costs rise, executives told investors on Friday.
Costs surged 58 percent in the first quarter, driven by rising maintenance expenses and a general decline in the U.S. dollar in countries were Vale operates. Executives fear that cost pressures could mount in coming quarters amid an uneven global economic recovery.
"We are feeling the pinch of tight labor markets, equipment supplies, higher prices for inputs -- in Brazil, for example, activity is red-hot," Jose Carlos Martins, Vale's head of sales and strategy, told investors on a conference call to discuss first-quarter earnings.
The comments underscore the risks that strong activity in fast-growing regions like Asia and Latin America could pose to Vale, which has some of its best clients across emerging markets. As a result, Vale could fall short of completing its $24 billion investment plan for this year.
"We see that it is becoming harder and harder to meet deadlines in each and every project we have," he noted. Capital expenditures "could be closer to around $20 billion" than the actual target for this year, he added.
If inflation in countries like China gains steam, the risk for the mining giant is that governments act to slow economic growth in those places, crimping demand for metals.
"That is the real risk," Martins said.
The difficult operating environment could extend for a few more months, and could spark revisions to output targets or projects, Chief Financial Officer Guilherme Cavalcanti said on the conference call.
SHARES GAIN
American depositary receipts of Vale (VALE.N: Quote) rose 0.7 percent to $31.14 on the New York Stock Exchange. Its nonvoting shares (VALE5.SA: Quote) were flat at 44.49 reais in Sao Paulo in early afternoon trading.
Vale said late on Thursday that net income rose more than fourfold to a record $6.83 billion in the first quarter from $1.6 billion a year earlier. The result beat the $5.75 billion average estimate of nine analysts in a Reuters survey.
Excluding one-off items, Vale earned $5.32 billion, which led some analysts to say that operating results were weaker than expected.
The result came as iron-ore prices, which account for 60 percent of Vale's revenue, more than doubled, making up for higher energy and wage costs in Brazil. Vale also booked a one-time $1.51 billion gain from the sale of some aluminum assets to Norsk Hydro (NHY.OL: Quote), a deal that was concluded in the prior quarter.
"The main disappointments were iron ore sales that were 15 percent off in a quarter-on-quarter basis due to seasonal weather and continued weak financial performance from all other divisions, despite improved metals prices," wrote Alexander Hacking, an analyst with Citigroup.
Iron ore prices will likely remain stable in the coming months, the executives said. Vale said prices rose 94 percent to $126 a metric tonne from the first quarter of 2010.
Rio de Janeiro-based Vale will continue seeking "opportunistic" acquisitions and is considering options, Cavalcanti said, without elaborating.
(Additional reporting by Inae Riveras in Sao Paulo; Editing by Derek Caney and Richard Chang)
By Guillermo Parra-Bernal and Denise Luna, sourced Thomson Reuters)
* Projects hampered by lack of work force, equipment
* Sees global inflation as risk factor for ore market
* Sees iron ore price stability through end of September
* Continues to see acquisitions in "opportunistic" way (Recasts with outlook on risks; adds comments, details on record profit, byline; previous dateline SAO PAULO)
SAO PAULO/RIO DE JANEIRO, May 6 (Reuters) - Brazil's Vale, the world's biggest producer of iron ore, could face higher production costs and delays in capital spending as it lacks equipment and a qualified workforce, and raw materials costs rise, executives told investors on Friday.
Costs surged 58 percent in the first quarter, driven by rising maintenance expenses and a general decline in the U.S. dollar in countries were Vale operates. Executives fear that cost pressures could mount in coming quarters amid an uneven global economic recovery.
"We are feeling the pinch of tight labor markets, equipment supplies, higher prices for inputs -- in Brazil, for example, activity is red-hot," Jose Carlos Martins, Vale's head of sales and strategy, told investors on a conference call to discuss first-quarter earnings.
The comments underscore the risks that strong activity in fast-growing regions like Asia and Latin America could pose to Vale, which has some of its best clients across emerging markets. As a result, Vale could fall short of completing its $24 billion investment plan for this year.
"We see that it is becoming harder and harder to meet deadlines in each and every project we have," he noted. Capital expenditures "could be closer to around $20 billion" than the actual target for this year, he added.
If inflation in countries like China gains steam, the risk for the mining giant is that governments act to slow economic growth in those places, crimping demand for metals.
"That is the real risk," Martins said.
The difficult operating environment could extend for a few more months, and could spark revisions to output targets or projects, Chief Financial Officer Guilherme Cavalcanti said on the conference call.
SHARES GAIN
American depositary receipts of Vale (VALE.N: Quote) rose 0.7 percent to $31.14 on the New York Stock Exchange. Its nonvoting shares (VALE5.SA: Quote) were flat at 44.49 reais in Sao Paulo in early afternoon trading.
Vale said late on Thursday that net income rose more than fourfold to a record $6.83 billion in the first quarter from $1.6 billion a year earlier. The result beat the $5.75 billion average estimate of nine analysts in a Reuters survey.
Excluding one-off items, Vale earned $5.32 billion, which led some analysts to say that operating results were weaker than expected.
The result came as iron-ore prices, which account for 60 percent of Vale's revenue, more than doubled, making up for higher energy and wage costs in Brazil. Vale also booked a one-time $1.51 billion gain from the sale of some aluminum assets to Norsk Hydro (NHY.OL: Quote), a deal that was concluded in the prior quarter.
"The main disappointments were iron ore sales that were 15 percent off in a quarter-on-quarter basis due to seasonal weather and continued weak financial performance from all other divisions, despite improved metals prices," wrote Alexander Hacking, an analyst with Citigroup.
Iron ore prices will likely remain stable in the coming months, the executives said. Vale said prices rose 94 percent to $126 a metric tonne from the first quarter of 2010.
Rio de Janeiro-based Vale will continue seeking "opportunistic" acquisitions and is considering options, Cavalcanti said, without elaborating.
(Additional reporting by Inae Riveras in Sao Paulo; Editing by Derek Caney and Richard Chang)
By Guillermo Parra-Bernal and Denise Luna, sourced Thomson Reuters)
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