Vale's strong results could have political implications

The profits of Brazilian mining giant Vale more than tripled in the second quarter, increasing the chances of growing political pressure on the company.

The firm posted a net profit of US$2.77bn, up from US$892mn a year earlier. Net revenue increased 3% to US$9.92bn.

Earnings benefited from a one-time gain from the sale of a stake in its copper and nickel division, Vale Base Metals (VBM), to Manara Minerals and also the sale of its PTVI operation in Indonesia, the miner said in a statement.

Vale's investments in Q2 reached US$1.33bn, up from US$1.21bn a year ago. Of the total, US$328mn was invested in growth projects and the rest in maintenance projects.

The company also announced that it will pay US$1.6bn in dividends in September.

"Quarter after quarter, Vale continues to deliver solid results and higher dividends and this will continue in the next quarters. What is positive for the company also explains why the government is putting so much pressure on Vale, because it wants to see the firm investing in more projects in the country instead of paying so much in dividends to shareholders," mining consultant Pedro Galdi told BNamericas.

The federal government has a nearly 9% indirect stake in the company through Previ, the pension fund for employees of state bank Banco do Brasil, and wants to have a say in its choice of a new CEO. The company is in the middle of the process of selecting the new executive to take over from Eduardo Bartolomeo, who will remain in the position until the end of this year.

The government is also unhappy with Vale's management due to the company's delay in reaching a financial settlement with the victims of the tailings dam that collapsed in Mariana, Minas Gerais state, in 2015. The dam was operated by iron ore pellet maker Samarco, a joint venture between Vale and BHP.

The legal dispute in Brazilian and European courts could result in the mining firms having to pay out more than 100bn reais (US$17.7bn).

Vale’s CFO Gustavo Pimenta said during a conference call with analysts on Friday to discuss the firm's Q2 results that the firm expects to reach an agreement with authorities in "the coming months," without providing further details.