UPDATE 2-Brazil miner Vale profit down, eyes new iron pricing

* Vale sees new pricing system affecting Q2 earnings

* Net income drops 8.6 percent from year earlier
(Adds earnings details, background)

By Brian Ellsworth and Denise Luna

RIO DE JANEIRO, May 5 (BestGrowthStock) – Brazilian mining giant
Vale on Wednesday said first-quarter net earnings slipped on
higher financial and operating expenses and lower revenues,
signaling the company has not yet benefited from a new iron
pricing system.

Analysts say the company will see a strong revenue jump
next quarter with a price hike for iron ore and a shift to
quarterly pricing from the decades-old benchmark system that
prevented Vale from cashing in on soaring spot iron prices.

“We have reached agreements, permanent or provisional, with
all of our iron ore clients around the world to alter existing
contracts to a price (system) based on indexes,” Vale said.

“The implementation of the new system will begin to be
reflected in our financial performance as of the second quarter
of 2010.”

Vale (VALE.N: ) (VALE5.SA: ), the world’s largest producer of
iron ore, completed negotiations with clients in recent weeks
to raise ore prices to around $100 per tonne, nearly double the
average $55.86 per tonne it received in the fourth quarter.

“In an environment of rapid growth, the old system of
benchmark prices based on annual bilateral talks was shown not
to serve the best interests of either the steelmakers or the
miners,” Vale said. “It became clear that it was time to move
the iron ore pricing system.”

The company said it expects strong growth from a pipeline
of projects including an expansion of the massive Carajas iron
mine as well as newly acquired areas in Guinea.

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For details on Vale’s Q1 production click: [ID:N05222012]

For a graphic on Vale iron ore production click:

http://link.reuters.com/gup72k

For a graphic on iron ore, click:

http://link.reuters.com/zed75j

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Net revenues dropped 8.6 percent to 2.88 billion reais
($1.60 billion) compared with 3.15 billion reais in the same
period a year earlier.

The estimate of seven analysts polled by Reuters predicted
Vale would post average net income of $1.40 billion.

Earnings before interest, taxes, depreciation and
amortization, or EBITDA, fell to 5.39 billion reais from 5.45
billion reais a year earlier.

A strike at nickel operations in Canada, heavy rains in the
Southern Hemisphere and logjams in some ports that hampered
deliveries were behind a 2.6 percent year-on-year decline in
revenue to 12.92 billion reais, the company said.

Nickel production fell nearly 50 percent to 33,000 tonnes
as a result of the prolonged dispute with unions in its
Canadian nickel operations that Vale acquired in 2006.

The currency’s 22 percent gain in the first quarter from a
year earlier also trimmed the value of exports.

Cost of goods sold fell 3.5 percent to 6.88 billion reais,
indicating that Chief Executive Roger Agnelli’s efforts to pay
less for raw materials and other supplies are coming to
fruition.

But Vale spent more in energy supplies in the quarter, as
oil prices recovered in the period.

Total expenses rose to 1.92 billion reais from 1.89 billion
reais in the first quarter of 2009.

Stock Today

($1=1.80 reais)
(Additional reporting by Guillermo Parra-Bernal; Editing by
Leslie Gevirtz and Richard Chang)

UPDATE 2-Brazil miner Vale profit down, eyes new iron pricing