(Bloomberg) -- Vale SA, the world’s second-biggest iron ore supplier, posted second-quarter results that slightly trailed analyst estimates after facing higher expenses.
The Rio de Janeiro-based company is struggling with rising costs at a time when the iron-ore market has also been weak, partly because of a demand slump in China. Vale said Thursday that higher expenses from freight and maintenance activities weighed on its earnings.
The company reported proforma adjusted earnings before items of $3.99 billion in the quarter, missing the $4.07 billion average analyst estimate.
“As expected, cost performance continues to weigh on the negative side,” Daniel Sasson, an analyst at Itau BBA, said in a note to clients. “Operating cash generation was also weak, mainly due to the consumption of working capital.”
Still, Vale and other major iron ore companies are seeing an advantage in production costs compared with junior miners. On a net basis, Vale’s profit more than tripled compared with a year earlier.
Brazil’s mining giant sold a larger share of lower-grade products in the quarter, which also tempered gains driven by robust output from its biggest mine in the north of the country. Vale said earlier this month it mined 80.6 million tons of iron ore in the quarter, 2.4% higher than the same period a year ago.
Iron ore is one of the year’s worst performing major commodities, slumping more than 25% as China’s property crisis hurts demand and big miners keep adding volumes to the seaborne market. Vale gets about 90% of its revenues from the steelmaling staple.
Vale also announced a partnership to build a concentration plant in Sohar, Oman, with an initial production capacity of 12 million tons a year of high-grade iron ore concentrates. The plant will feed Vale’s pellet plants and future briquette plants in the region, with startup expected for 2027.
The company said it will return 8.9 billion reais ($1.6 billion) to shareholders in interest on capital, to be paid in September.
Vale shares were little changed in after-hours trading on Thursday. The stock trades at a discount compared with other major miners due to company-specific issues. Vale is still dealing with the fallout of a 2015 tailings dam disaster on Samarco, an iron ore venture with BHP Group. The company expected to reach a final settlement last month, but negotiations with Brazilian authorities are still ongoing.
Vale has also been navigating through a tumultuous leadership change, with Chief Executive Officer Eduardo Bartolomeo holding the top post through December while the search for a successor continues. The next CEO will be selected from three shortlisted names that will be passed on by a consulting firm by the end of September.
(Updates with additional details and context starting in the second paragraph)
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