LONDON Vale SA has dropped its multibillion-dollar Simandou iron ore project in Guinea from its project list as its underlying first-quarter earnings fell 10.1 percent year on year to $3.19 billion despite lower costs and expenses.
In the first quarter of 2012, the companys underlying earnings totaled $3.56 billion. However, the latest quarterly tally was up 63.9 percent from $1.95 billion in the fourth quarter, the Brazilian miner said in its quarterly results, released late April 24.
"Operating costs as well as (selling, general and administrative expenses) and other expenses were meaningfully reduced as an outcome of several initiatives being implemented," Rio de Janeiro-based Vale said.
Cash generation, measured by adjusted earnings before interest, taxes, depreciation and amortization (Ebitda), increased 41.1 percent year on year to $5.2 billion during the quarter, Vale said, noting that the result was second only to that for the first quarter of 2011, when iron ore, nickel and copper prices peaked on the back of the sharp recovery from the 2008-09 global financial crisis.
Meanwhile, Vale made no reference to either the Simandou project or the nearby Zogota Mine in the results. In its 2012 results, Vale had noted that the Zogota iron ore mines "scope and schedule" were under review.
Vale in January said that it had earmarked capital expenditures of just $9 million for the Zogota Mine this year compared with $298 million in 2012. The 15-million-tonne-per-year mine is expected to cost $1.26 billion.
The Simandou project is jointly held with BSG Resources Ltd. (BSGR), a company owned by Israeli diamond billionaire Beny Steinmetz. The company earlier this month said that BSGR had demanded a $180-million payment for Simandou, but Vale wouldnt make the payment as unspecified conditions hadnt been met.
Vale said that it had halted work at Simandou in October, citing government red tape, shortly before Guineas technical committee leveled corruption allegations against BSGR over its acquisition of the Simandou exploration rights. BSGR has denied any wrongdoing.
A criminal complaint was filed April 15 in U.S. District Court in New York against Steinmetz associate Frederic Cilins, who is accused of attempting to obstruct the ongoing investigation (amm.com, April 16).
Vale couldnt be reached for comment.
Ana Paula Camargo, São Paulo, contributed to this story.
A version of this article was first published by AMM sister publication Steel First.