By Andrew Willis, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazilian miner Vale suffered a series of financial setback’s last week that will significantly hit fourth quarter figures this year, the company said. The Rio-headquartered company settled two tax disputes at greater expense than previously budgeted and was also forced write US$4.2 billion off nickel and aluminum assets.

Murilo Ferreira, Vale CEO, Rio de Janeiro, Brazil News
Murilo Ferreira, Vale CEO, speaking at Vale Day NY 2012, photo by Agência Vale.

One dispute, dating back to 2006, relates to the calculation of taxes on services and the circulation of goods (ICMS) in the Brazilian state of Minas Gerais, Brazil’s traditional mining center.

Vale agreed to pay the state R$663 million (US$320 million) and accept new legislation on ICMS. The company had set aside R$135 million for settlement of the dispute, significantly less than the final cost.

“Vale’s financial statement for the fourth quarter of 2012 will suffer a negative impact of R$528 million,” the company said in a statement.

Brazil’s Vale is the world’s second-largest miner – and the world’s largest miner of iron ore – with key domestic operations located in the states of Minas Gerais and Para, further north.

The second settlement, of a dispute also dating back to 2006, relates to taxes owed in Switzerland, the headquarters of Vale’s European business operations. The company has agreed to pay federal authorities US$232 million.

“The tax dispute was related to the federal tax holiday granted to Vale International in 2006 and the differences in its interpretation,” the company said in a statement. “Vale has made a provision of US$37 million and the difference will impact our income statement in the fourth quarter of 2012.”

Dam in the Sossego copper mine
Dam in the Sossego copper mine, in Pará, Brazi, photo by Agencia Vale.

Combined, the two settlements will negatively affect Vale’s fourth quarter figures by roughly US$450 million. An ongoing dispute with Brazil’s federal government over taxes could end up costing Vale an even larger sum, however.

The miner argues that it does not need to pay taxes in Brazil for overseas earnings that have already been taxed, with the case currently with Brazil’s Supreme Court.

On Thursday, December 20th, Vale published more bad news, this time that it was taking US$4.2 billion in write-downs linked to its ferronickel business in Brazil and aluminum assets in Europe.

The company said that the impairment reflected the “current market environment for ferronickel” and the need to rebuild a furnace at its Onca Puma mine and processing plant in Brazil. Operations at the Onca Puma plant in the state of Para were halted in June and are now not expected to restart before the fourth quarter of 2013.

A reduction in iron prices over the past two years, primarily due to a fall in demand from China, has also hit Vale, as have problems securing environmental licenses for certain projects. Environmentalists and human rights groups frequently target the company for alleged bad practices, including the building of a railway in the Brazilian state of Para that will link the Carajas mining complex with the coast.


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