CVRD: The Big Brazilian delivers the goods

Despite lower nickel revenue during the third quarter, CVRD, the world's No 2 miner, has earned $10bn in the first nine months of the year, 77% up on the comparable 2006 period.

JOHANNESBURG - 

Brazil's Companhia Vale do Rio Doce (CVRD) (NYSE: RIO, $34.56 a share), the world's No 2 mining group measured by market value, posted revenues of $8.1bn for the third quarter of 2007, $732m higher than the corresponding period of 2006. The figure for the latest quarter was, however, $775m lower than the second quarter of 2007, on a sharp (and well known) decline in revenue from nickel sales.

The revenue decline from CVRD's nickel division was substantial, at $1.2bn in the third quarter of 2007, measured against the second quarter of this year. Nickel prices staged a huge spike to nearly $25/lb in May, and subsequently corrected by a half. The metal is currently trading around $14.27/lb.

The heavy decline in revenue from nickel was partially mitigated by a $313m gain from iron ore sales during the third quarter of this year. CVRD's net earnings for the first nine months of 2007 came in at $9.9bn, 77% higher than the $5.6bn recorded for the first nine months of 2006. The CVRD stock price rose nearly 3% in New York trading on Friday, in a generally buoyant atmosphere for resources stocks.

CVRD has recorded the most significant re-rating of a senior mining stock, when measured over the past 12 months. The stock price has risen by nearly 200% over the period, as investors have continued to factor in, in particular, recognition of CVRD as the world's biggest producer of seaborne iron ore.

CVRD's position in this market gives it considerable clout in influencing global prices for the variants of iron ore, mainly fines and pellets. The group's adjusted earnings before interest and tax (EBIT) margin for ferrous metals during the third quarter of 2007 was 50%, in line with figures seen over the past 12 months. Group EBIT margins were 43% for the latest quarter.

Ferrous metals, including iron ore, comprised 51% of the revenue line in CVRD's third quarter 2007, followed by 35% from non-ferrous metals, where nickel remained by far the most significant contributor. The group is also an important producer of copper and aluminum. CVRD is rapidly expanding its various divisions, and is increasingly recognized as an important growth stock, with billions of dollars committed to its project pipeline.

These include a $66m expansion of iron ore production capacity at Carajás; $11m for the Fazendão iron ore mine; $417m for the pelletizing project at Itabiritos; $78m for the copper project at Salobo; $97m for the Vermelho nickel project; $658m for the Onça Puma nickel project; $938m for the Goro nickel project in New Caledonia (South Pacific); $520m for stages six and seven at the Alunorte alumina facility, and $115m for the second phase of the Paragominas bauxite project.

On the hot topic of rising costs in the global resources sector, CVRD's benchmark cost of goods sold (COGS) tallied $3.785bn in the third quarter of 2007, representing, on the face of it, a 10.3% increase on the figure for the third quarter of 2006. The group points out that if the $353m increase in COGS is analysed, $233m can be attributed to the depreciation of the dollar, $139m can be linked to higher sales volume, and $47m to depreciation, leaving a reduction in unit costs of $66m.

SUBSCRIBE to Mineweb.com's free daily newsletter now.

SHARE THIS ARTICLE

Print story      Email story      Subscribe to free newsletter
OTHER PAGES:  IRON AND STEEL AFRICA

Back