Valeâ€™s Striking First Quarter
Vale, the company against which my union has been on strike since July 2009, released its first-quarter earnings this evening. The release deflates Valeâ€™s rationale for demanding labour concessions and confirms that the strike is hurting its bottom line.
The company wants to eliminate defined-benefit pensions for new employees and drastically reduce the bonus paid to workers when nickel prices and/or profits surpass defined thresholds. These concessions were supposedly needed to mitigate low commodity prices during the economic crisis.
The opening line of todayâ€™s report lauds Valeâ€™s â€œsolid performance in the first quarter of 2010â€ and â€œthe strong recovery of the global demand for minerals and metals.â€ Indeed, the company reports an after-tax profit of $1.6 billion, more than in the previous quarter. So, the original justification for concessions has disappeared.
The reportâ€™s second page indicates that Vale paid out dividends of $1.25 billion on April 30. By comparison, it paid all its employees everywhere in the world $424 million in the first quarter. On an annual basis, dividends also exceeded total labour costs last year. If Vale can afford to make such large discretionary payments to shareholders, why does it need concessions from workers?
Vale also promises to spend $8.2 billion on new acquisitions, starting in the current (second) quarter.
Vale acknowledges that â€œ$205 million of the 1Q10 expenses were due to the idling of two of our Canadian nickel operationsâ€ (page 13).
In addition, Vale is having to buy more nickel to replace lost Canadian production:
The purchase of nickel products reached $91 million, against $78 million in 4Q09. Given the effect of the labor strike in Sudbury and Voisey Bay in [sic] our production and the lack of inventories, we continued to increase the purchases of both intermediate and finished nickel products to meet contractual obligations with clients (page 12).
While Vale makes much of partially restarting operations in Sudbury and Voiseyâ€™s Bay, its nickel revenues were actually lower in the first quarter than they had been in the fourth quarter of last year. Nickel prices were up 12%, but Vale sold 17% fewer tons.
These figures suggest a depletion of the companyâ€™s inventories. Certainly, higher nickel prices are not offsetting lost production.
By any measure, the strike is costing Vale far more per quarter than the total annual cost of the United Steelworkersâ€™ pension and bonus plans. By refusing to settle, Vale management is giving up more money than it could possible recoup through proposed concessions.
Shareholders would be better served if Vale abandoned its concessionary demands. Bringing Sudbury and Voiseyâ€™s Bay back to normal production by negotiating a fair deal would add hundreds of millions of dollars to Valeâ€™s quarterly earnings.
Silence on Goro
Todayâ€™s documents do not mention the major acid spill at Valeâ€™s Goro nickel operation in New Caledonia in April. (Technically, this industrial accident did not occur in the first quarter.)
Note: All figures are in US dollars.