Vale sinking feeling on iron ore guidance

5th June 2020
Resources Rising Stars

There is mounting evidence that beleaguered Brazilian iron ore giant Vale will battle to achieve guidance as Australia’s biggest producers reap the rewards of a price rally (reports The Australian Financial Review).

A berth-by-berth analysis of global shipping by Macquarie Wealth Management shows Vale continues to lag behind its guidance targets even after an improvement the past fortnight.

Vale would need to ship iron ore at a rate it has not achieved so far this year to reach even the lower end of its 310 million-330 million tonne guidance for 2020, the analysis shows.

Iron ore shipments from Brazil totalled 14.9 million tonnes in the past fortnight, a big step up from the weekly rate of 5.5 million tonnes recorded in the prior four weeks.

Vale exports have increased to more than 5 million tonnes a week, but it will need to ship at more than 6 million tonnes a week to make guidance and has Brazilian authorities breathing down its neck over a COVID-19 outbreak.

Achieving guidance “remains a stretch” for Vale, with its weekly shipments averaging 4.5 million tonnes in the June quarter so far, Macquarie said.

Responding to questions about earlier weak port data on Tuesday, a Vale spokesman told The Australian Financial Review there had been no material impact on production from COVID-19, and the company has retained its official production targets.

The port figures painted a much-rosier picture for Australia’s major exporters, Rio Tinto, BHP and Fortescue Metals Group, after iron ore prices broke through the $US100 a tonne mark this week.

All three are set to achieve guidance if they maintain current weekly volumes of 6.7 million tonnes for Rio, 6.5 million tonnes for BHP and 3.6 million tonnes for Fortescue.

On the Macquarie port data, Rio has shipped 131 million tonnes so far this year, which is 39 per cent of the mid-point of its guidance range with a stronger second half expected.

Shipments from the Utah Point berths at Port Hedland used by Chris Ellison’s Mineral Resources and Atlas Iron, owned by Gina Rinehart’s Hancock Prospecting, have been strong in the past fortnight and well above target levels as they cash in on the high prices.

And Hancock Prospecting’s Roy Hill operations achieved an annualised shipment run rate of 65 million tonnes in May.

Mount Gibson Iron is the only Australian iron ore producer to have withdrawn full-year guidance since the COVID outbreak.

Mineral Resources downgraded guidance for its Koolyanobbing operations but upgraded guidance for Iron Valley operations and, based on the latest port figures, is well on track to achieve target shipping volumes of 13.7 million-14.6 million tonnes.

Macquarie said iron ore miners were generating strong free cash flow at current prices with favourable currency and cost tailwinds boosting earnings. It said that spot prices, 2020-21 free cash were 10 per cent for BHP, 13 per cent for Rio, 16 per cent for Fortescue and 30 per cent for Mt Gibson.

Vale's battle to hit full-year guidance comes despite a big downgrade from 340 million-355 million tonnes in the wake of a disappointing start to 2020 where it fell well short of first quarter targets.

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