Vale reports loss as major planned maintenance completed in Q1

By Romel S. Gurky

IDX-listed nickel miner PT Vale Indonesia Tbk on Thursday announced its unaudited results for the first quarter of 2016 (1Q16). As reported last week, PT Vale?s nickel in matte production in 1Q16 was about 24 percent lower than the production volume realized in 4Q15 as a result of planned maintenance activities. Sales volume in the first quarter of this year was about 16,427 metric tons (t); 29 percent and 9 percent lower than sales volumes in 4Q15 and 1Q15, respectively.

?PT Vale successfully completed its planned maintenance requirements with shorter shutdown times than anticipated,? said Nico Kanter, CEO and President Director of the company. ?These maintenance activities are crucial to ensure our operations continue to function efficiently. We remain confident of meeting our 2016 production target and are now better positioned to face future challenges. I should note, however, that we remain cautious toward the nickel price in 2016.?

The nickel price in early 2016 continued to decline, resulting in a 13 percent drop in realized price, from US$7,642 per t in 4Q15 to $6,618 per t in 1Q16. This, coupled with lower sales volume, resulted in 1Q16 revenue falling to $108.7 million, a 38 percent decrease from revenue of $176.6 million in 4Q15.

The company?s cost of revenue ? both in total and on a per unit basis ? also declined from the previous quarter. Cost of revenue in 1Q16 was $122.8 million, down from $174.6 million in 4Q15. The cost of revenue for the company also declined by 26 percent in 1Q16 over 1Q15. Key drivers of the cost reduction were lower fuel, services and contract costs as well as supplies. At the same time cost control discipline improved including monitoring of discretionary spending.

However, the company reported negative gross profit for 1Q16 because cost of revenue decreased only by 30 percent from 4Q15.

Fuel costs in the first quarter of 2016 were over 40 percent lower than fuel costs in 4Q15 and 1Q15 because the Company consumed less High Sulphur Fuel Oil (HSFO) in 1Q16 than in 4Q15 and 1Q15 and less diesel in 1Q16 than in 4Q15. HSFO and diesel prices were lower in 1Q16 than in 4Q15 and 1Q15.

The decline in HSFO consumption in 1Q16 corresponds to the decline in production. While diesel consumption in the same period also decreased as the company stopped operating generators to produce electrical power by mid‐January 2016 after the water levels at our hydro‐dams began to improve significantly thanks to higher levels of rainfall.

Coal usage per unit of production in 1Q16 increased by 9 percent from 4Q15, although the total volume consumed was lower with the decline in production. The increased coal usage per unit of production was driven by the commercial trial of Coal Conversion Project 2 (CCP2) in reduction kiln #3. The commercial trial will continue until the company is confident that the configuration has reached optimum performance.

The company?s cash and cash equivalents as of March 31, 2016 and Dec. 31, 2015 were $232.6 million and $194.8 million, respectively. PT Vale has exercised, and will continue to exercise, prudent control of its spending to preserve cash.

In 2016, PT Vale plans to produce approximately 80,000 t of nickel in matte. At the same time, the company will maintain its focus on improving costs to sustain competitiveness in the long run without compromising the company?s foremost value: Life Matters Most.

Editing by Johannes Simbolon