Vale’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 Vale’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.

Why Concessions?

The opening line of today’s report lauds Vale’s “solid performance in the first quarter of 2010” and “the strong recovery of the global demand for minerals and metals.” 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 report’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.

Strike Costs

Vale acknowledges that “$205 million of the 1Q10 expenses were due to the idling of two of our Canadian nickel operations” (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 Voisey’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 company’s inventories. Certainly, higher nickel prices are not offsetting lost production.

Shareholder Value

By any measure, the strike is costing Vale far more per quarter than the total annual cost of the United Steelworkers’ 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 Voisey’s Bay back to normal production by negotiating a fair deal would add hundreds of millions of dollars to Vale’s quarterly earnings.

Silence on Goro

Today’s documents do not mention the major acid spill at Vale’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.

UPDATE (May 7): Quoted by American Metal Market and The Sudbury Star

2 comments

  • Their production report is even more revealing at least for Nickel.

    First quarter 2009 without a strike, Sudbury and Voisey Bay represented 65% of the 65K tons of nickel mined.

    Fourth Q 2009 with the strike, total nickel output sank to 30k tons with only 6k tons from Sudbury and Voisey.

    This does not include auxiliary minerals from both mines that also account for substantive revenue streams.

    No mention anywhere of forward looking guidance of the Goro mine that was supposedly to come online in early 2010. As mentioned, the second acid spill from a new technology to extract Nickel from a different form of ore body would seem to cloud the future of Nickel output from Vale.

    19 billion is a whole lot for an asset to sit idle or whatever limited output they seem to be getting from replacement scab labour. With the prices rising, it is much much more costly for this strike. Of course this only measures the tangible damages. Trying to destroy an entire Canadian mid size city with such a long, nasty strike will cost them a whole lot more in poor moral and labour relations over the next several years. The scars from this strike are very deep and sadly, continue to keep digging away at these workers.

    I did not realize the size of the dividend payouts they were giving out- wow this surely is a case of ideology and not productivity. It just cannot be about money- makes you wonder about the IR of a MNC.

  • It makes one wonder out loud, how can a company survive such a strike, that would see an estimated 30-40% of its revenue stream pretty much flat line for much of its nickel operation over 10 months.

    We do know that Vale could easily have been one of the companies implicated in the price fixing between a handful of companies within the steel industry and China. Potentially one of the dynamics labour is missing in this globalized economy is a bit help from other companies at the global nickel level. There are but a handful of companies, and given the price of nickel over the past year, who knows what is going on within these close loops of collusion within the corporate boardrooms of big nickel companies.

    If they can get together to manage prices, why not get together to take out a union? Am I being too cynical?

    Something is going on here that is not above board. However the only solution for workers is solidarity in the face of such international forces.

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