Vale Idles Malaysia Port, Declares Aid for Suppliers in Brazil

Zacks Equity Research

Vale S.A VALE recently decided to temporarily halt iron ore shipments to its Malaysian terminal and distribution center, TelukRubiah Maritime Terminal (TRMT), effective Mar 24. This is likely to lead to 500,000 tons in lost shipments over first-quarter 2020.

The terminal shipped 23.7 Mt of iron ore in 2019. Vessels heading to TRMT will be redirected and redistributed among Vale’s blending facilities in China. While there is no expected impact on production and sales volume in 2020, the idling of the terminal till Mar 31, 2020 is likely to impact sales of approximately 500,000 tons in first-quarter 2020. Additional logistics are likely to lead to an increase in costs; however, it will be immaterial to margins.

Malaysia has a total of 1624 coronavirus cases, per the World Health Organization’s report as of Mar 25, 2020 with the death toll at 16. The country is currently under 14-day MCO (movement control order), which came into force on Mar 18, 2020, to contain the spread of the coronavirus. The order has been further extended to Apr 14, 2020. Schools, universities, government and private premises, barring essential services have been shut down. Mass gatherings and travel have been prohibited.

Vale Unveils Aid Package for Suppliers

Vale has announced support initiatives for suppliers to help them cope with these troubled times. These include making advance payments to small and medium-sized companies in Brazil.The company will also provide financial support to construction companies and workers allocated to projects that have been halted to reduce the flow of people and ensure safety of employees and outsourced workers.

Voisey’s Bay on Care and Maintenance

Vale had earlier announced that it is placing its Voisey's Bay mining operation in Canada on “care and maintenance” for a period of four weeks. The move is a precaution measure to help protect the health and well-being of Nunatsiavut and Innu indigenous communities in Labrador, and its own staff due the fly-in nature and higher exposure to travel of the remote mining operation. Voisey's Bay produced 25.0kt of copper in concentrate in 2019. The decision also impacts Voisey's Bay Mine Expansion project currently underway to transition to underground operations.

Vale also informed that due to travel and equipment transportation restrictions, it is revisiting its plans for the Mozambique coal processing plants stoppage. Notably, it was previously expected to commence operations in second-quarter 2020. A new date is under evaluation, which could ultimately affect coal production guidance for 2020.

In a bid to fight the coronavirus-induced crisis and strengthen its cash reserves, Vale has made the decision to disburse US$5 billion from its Revolving Credit Lines maturing June 2022 (US$ 2 billion) and December 2024 (US$ 3 billion).

The pandemic continues to claim lives and ravage economies.  Mining companies are halting their operations as different governments are imposing restrictions to contain the spread of the coronavirus.

Price Performance

Vale’s shares have fallen 38.2% in the past year compared with the industry’s decline of 38.3%.

Zacks Rank & Stocks to Consider

Vale currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Newmont Corporation NEM, Franco-Nevada Corporation FNV and Novagold Resources Inc. NG. While Newmont and Franco-Nevada currently sport a Zacks Rank #1 (Strong Buy), Novagold carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Newmont has an expected earnings growth rate of 72% for 2020. The company’s shares have gained 34% in the past year.

Franco-Nevada has a projected earnings growth rate of 37.6% for the current year. Its shares have rallied 43% over the past year.

Novagold has an estimated earnings growth rate of 11.1% for fiscal 2020. The company’s shares have surged 61.6% in a year’s time.

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