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Iron Giant Vale Restarts Dividends With ‘Worst Likely Behind Us’

Iron Giant Vale Restarts Dividends With ‘Worst Likely Behind Us’

One of the world’s biggest mining companies is now comfortable enough operating in the pandemic to reinstate dividends.

Vale SA’s board decided to resume its dividend policy, allowing stockholders to start sharing in a windfall from recovering iron ore, nickel and copper prices, the Rio de Janeiro-based company said in a statement Wednesday.

Once the most generous payer of dividends among major mining companies, Vale stopped payments early last year after the Brumadinho tailings dam collapse that left 270 people dead. Now the company is preparing to bring back mines halted after the disaster as it benefits from a surge in prices driven by strong Chinese demand.

“Following the reduction of uncertainties related to the pandemic, with risks of a second wave in China mitigated and the stabilization and decline in COVID-19 cases, especially in the northern states of Brazil, Vale assesses that the worst is likely behind us,” it said.

Iron Giant Vale Restarts Dividends With ‘Worst Likely Behind Us’

The policy requires minimum dividends calculated from first- half results to be paid in September. The board also approved the payment on Aug. 7 of interest on equity of about 1.41 real (27 cents) a share, Vale said in a statement that preceded its quarterly earnings release.

While second-quarter earnings before items came in below expectations, the result was above year-ago levels. Iron ore is trading near the highest in a year on robust steelmaking demand from China, offsetting higher operating costs.

Vale said in its earnings statement that the global steel market’s “bottom seems to have been reached” in the second quarter, with demand set to slowly recover.

Earlier: Vale’s Road Back to Top Iron Ore Spot Just Got a Little Longer

For Vale, the pandemic is a double-edged sword. A surge in Covid-19 cases in Brazil makes mining more difficult. But its operations are seen as the swing factor for the market’s supply-and-demand balance, meaning its own production struggles can help keep prices high, pushing up earnings.

After producing slightly less iron ore than expected last quarter, Vale is looking to accelerate to at least meet the lower end of its annual production target. Its shares have surged about 40% in the past three months, outpacing its main iron-ore rivals Rio Tinto Group and BHP Group.

“Vale’s compelling exposure to high margin iron ore and strong free cash generation with large capital return potential creates a compelling catalyst to rerate the shares,” RBC Capital Markets analyst Tyler Broda wrote.

Iron Giant Vale Restarts Dividends With ‘Worst Likely Behind Us’

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  • Adjusted earnings before interest, taxes, depreciation and amortization was $3.37 billion in the second quarter. That compares with the $3.7 billion average estimate and $3.1 billion a year ago.
  • Click here for the full earnings report
  • Vale will hold earnings calls Thursday at 9am and 11am

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