Impairment Weighs On Results, Vale (VALE.US) Still Pours Money Into Share Buybacks And Dividends

Brazilian mining company Vale (VALE.US) reported a fourth-quarter loss of US$694 million, far below market expectations and a stark contrast to its massive profit a year ago, as it took a hit on its Canadian base metals assets.

However, the move was met with positive reviews from analysts, as the world's largest iron ore producer also announced a new round of shareholder returns, including a dividend and share buyback, and trimmed its planned spending budget for this year.

Data showed the company's net loss for the quarter was far below analysts' expectations of a net profit of US$1.95 billion, and also lower than the US$2.4 billion it reported a year ago. Its loss was mainly due to a US$1.4 billion impairment charge on its Thompson nickel business in Canada, and a US$540 million impairment charge on the expansion of its Voisey's Bay mine in Canada.

Vale said the impairment was a decision taken after an assessment of the assets of its base metals business. The company said last month it had started a "strategic review" of its Thompson nickel assets, including the possibility of a sale.

Vale's core adjusted EBITDA profit for the quarter was US$3.79 billion, down 41% year-on-year, below analysts' expectations of US$3.96 billion.

If not for the asset impairments and one-time items, Vale's net profit for the quarter could have been US$872 million, but it was still down 64% year-on-year due to lower iron ore prices and volumes.

Vale announced a dividend of about BRL2.14 per share and plans to buy back up to 120 million shares, or 3% of its share base, over the next 18 months.

Analysts at Santander praised the "solid performance" and noted that the operating data did not include the impact of the impairments and other one-time items.

"Given the above-market shareholder returns and the new share buyback program, we expect the market to react positively," they wrote in a note to clients.

Analysts at Itau BBA also expected a positive market reaction and noted that a quarter of the dividend announced was a special dividend.

Vale's production and sales report released last month showed a near 5% year-on-year decline in iron ore production in the fourth quarter, as the company prioritised higher-margin products. However, the company's full-year production in 2023 still reached a new high since 2018.

In another filing on Wednesday, Vale trimmed its expected capital spending for this year to about US$5.9 billion from US$6.5 billion, mainly due to reduced planned investments in growth and energy transition metals.