Brazil’s Vale, the world’s top iron ore producer,is expecting major improvement in the performance of its base metals division in 2020 but said that production cuts would remain effect this year and next while prices remain low, executives said.
Chief Executive Fabio Schvartsman forecast a major jump for the segment in 2020. Base metals are non-precious metals that contain no iron.
“We are expecting a significant jump in results for base metals in 2020 due to the likely recovery in prices, reduction in costs, and jump in volume that the company will have in 2020,” Schvartsman said in a call with analysts.
The comments came a day after Vale reported third quarter results that fell short of expectations, because of a $250 million drop in base metals operating profit, in addition to a weaker real currency.
The base metals forecast represented a shift, after Schvartsman said in February that the company was seeking to make its base metals unit grow to 30 percent of its financial results by the end of 2019, in a bid to diversify beyond its massive iron ore business.
On Thursday, Vale Chief Financial Officer Luciano Siani said the company’s net debt would fluctuate around a target of $10 billion but not go below that level.
Vale has managed to reduce its net debt to $10.7 billion, still above the $10 billion goal Schvartsman had set for the middle of 2018. Heavy spending on Vale’s flagship S11D mine, which churns out rich grades of ore, drove up Vale’s debt in recent years, at a time iron ore prices slid sharply.
Schvartsman said iron ore from S11D would be used for blending and would not put pressure on market supply. He added that Chinese demand had been stronger than expected and that the ore division will perform well in coming quarters.
China’s campaign to clean its skies by clamping down on polluting steel mills has fueled a need for high-grade iron ore to boost productivity and limit emissions, opening the door wider for suppliers of better quality ore like Vale to the world’s biggest buyer.
Schvartsman said Vale will have news on the New Caledonia nickel mine soon. The company has been seeking to find a partner to invest in it by year-end.
Over-budget and years late when it finally started up in 2010, the New Caledonia project accumulated nearly $1.3 billion in losses between 2014 and 2016.