Vale shares rose to the highest in two years after the world's biggest iron-ore miner beat analysts' earnings estimates on lower costs, stronger prices and record production.
Shares advanced for a sixth day, gaining 2.1 per cent at 10.18am in Sao Paulo, after the Rio de Janeiro-based company posted adjusted earnings before interest, taxes, depreciation and amortisation of $US3.02 billion for the third quarter, exceeding the $US2.7 billion average of nine dollar-based estimates compiled by Bloomberg.
Pummeled by the biggest commodities downturn in a generation, Vale is once again generating cash after cutting costs and selling assets as prices recover. Chief executive officer Murilo Ferreira is betting on new, high-grade deposits in northern Brazil to offset his transport cost disadvantage with Australian mines that are much closer to Chinese steel mills.
Reporting a decline in net debt to $US26 billion and a cash position of $US5.5 billion, Vale is on track to strengthen its balance sheet, chief financial officer Luciano Siani said in a webcast presentation.
Vale has continued to expand as global supply cutbacks and a boost in economic stimulus in China helped spur a 45 per cent rebound in prices of the steelmaking ingredient this year. The Brazilian miner reported record output of 92.1 million metric tons for the third quarter, including third-party purchases.
Sales were in line with estimates at $US7.32 billion. Its average sales price in the quarter was $US50.90 a wet metric ton compared with $US46.50 a year earlier, while its landed-in-China break-even cost fell to $US29.60.
"Performance was particularly positive in iron ore," Bradesco analyst Thiago Lofiego wrote in a note to clients, adding that costs declined despite an appreciation of the Brazilian real.
Still, Vale lowered its output forecast for next year as it takes a more cautious approach to ramping up the $US14 billion S11D project in northern Brazil. Along with its two main rivals, BHP Billiton and Rio Tinto Group, Vale is focusing on containing costs and protecting margins after a slowdown in demand led to oversupply and slumping prices. Even after this year's rally, prices are still down more than 65 per cent from a 2011 peak.
On a net basis, Vale reported profit of $US575 million compared with a year-earlier loss of $US2.12 billion, it said in a statement. That missed Bradesco's estimate on higher-than-expected financial expenses and currency variations.
Also one of the world's biggest nickel producers, Vale is selling assets including coal and fertiliser operations to lower debt accumulated when commodity prices soared. Since Ferreira took the helm in 2011, Vale has raised about $US12 billion in divestitures in 24 separate transactions, according to data compiled by JPMorgan Chase & Co.
"Vale is much leaner now and we continue to see the company as a deleveraging story," JPMorgan analysts including Rodolfo Angele wrote in a September 28 note to clients after raising their recommendation for the stock to the equivalent of buy from hold.
Shares in the Brazilian company, which have fallen more than its major rivals since the commodities downturn began, have outperformed this year. Vale has doubled in value in 2016, while BHP and Rio Tinto have gained 28 per cent and 41 per cent, respectively.