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Vale S.A VALE recently announced 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. Following the news, Vale’s shares have dipped 2% on Oct 4.
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. The shutdown is likely to lead to probable losses incurred by those that are part of its value chain, such as suppliers, contractors, clients, and employees, in addition to the Federal government, the State of Pará and the municipalities reached by the operations.
The company is in contact with the Environmental and Sustainability office of the Pará State to understand the technical and legal grounds for the suspension of the license. It is also taking appropriate measures to reverse the order to suspend mine operations.
Vale had to shut down the Onca Puma mine earlier in September 2017 owing to allegations of negative impact on the health of communities near the mine. In June 2019, the company suspended its nickel processing activities at the Onça Puma plant. Subsequently, in September 2019, the Federal Supreme Court decided to suspend the injunctions and allowed the resumption of operations at Onça Puma.
The company produced a total of 214.7 kt of nickel in 2020, which was up 3% year over year, driven by improved performance from Onça Puma and increased source ore from Indonesia, partly negated by the COVID-19 impact. Onca Puma’s output for the year was 16,000 tons. Excluding Vale New Caledonia (“VNC”), nickel production was 183.7 kt in 2020, in line with 2019.
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 is working toward transforming its base metals business and believes it will attain 500 ktpy (kilo tons per year) with projects already in pipeline — Salobo III, Alemao and Cristalino.
In June 2021, Vale announced first ore production on its Reid Brook deposit at the Voisey’s Bay Mine Expansion Project in Northern Labrador. Home to one of the largest nickel deposits in the world, Voisey’s Bay has been producing nickel from an open-pit operation since 2005. The transition to underground involves the development of two underground mines — Reid Brook and Eastern Deeps, thus extending the life of Vale’s Labrador operations and achieving production of 40,000 tons of nickel in concentrate at a peak annual production rate of 2.6 million tons by 2025, with about 20,000 tons copper and 2,600 tons of cobalt as byproducts. The project is 66% completed, with executed capital expenditures of $1,323 million and Eastern Deeps expected to start operations in 2022.
The ore produced at Voisey’s Bay is processed at Vale’s Long Harbour — one of the world’s lowest emission nickel processing plants. The sustainably-produced, responsibly sourced nickel, copper and cobalt products will help meet future customer demand in the electric vehicle and clean energy space as the industry focuses on reducing greenhouse gas emissions and lowering carbon footprints.
So far this year, shares of Vale have fallen 17.2%, compared with the industry’s decline of 15.2%.
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This 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 and slowdown across its property sector. In the third quarter of 2021, iron ore plummeted 49% — the first quarterly loss since the first quarter of 2020. Copper prices have plunged amid a stronger dollar and growing concerns about the Chinese real estate market. Meanwhile, inflated input and freight costs will weigh on its margins.
Zacks Rank & Key Picks
Vale currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the basic materials space include Veritiv Corporation VRTV, Nucor Corporation NUE and Teck Resources Ltd. TECK. All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Veritiv has a projected earnings growth rate of 214.9% for the current year. The company’s shares have skyrocketed 359% year to date.
Nucor has a projected earnings growth rate of roughly 534.4% for the current year. The company’s shares have rallied 82% so far this year.
Teck Resources has a projected earnings growth rate of 305.3% for the current year. Year-to-date, the company’s shares have gained 42% in a year.
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