VANCOUVER (miningweekly.com) – The world’s most prolific producer of iron-ore, Vale, on Thursday reported first-quarter earnings that disappointed investors, sending its NYSE-listed stock falling as much as 5.4% in early trading.

The Rio de Janeiro, Brazil-based diversified miner reported net income totalling $2.49-billion for the three months ended March, significantly higher when compared with earnings of $514-million in the corresponding period a year earlier.

Underlying earnings in the period jumped to $2.1-billion, or $0.41 a share, up from $514-million, or $0.10 a share a year earlier, but fell short of average analyst forecasts calling for earnings of $0.47 a share.

Free cash flow also increased significantly to $2.42-billion, up from $123-million a year earlier, as cash generated from operations totalled $4.06-billion, despite an increase in iron-ore inventories along the supply chain to support the enhanced blending activities and the payment of variable compensation in the period.

Cash proceeds from net disposal/acquisition of asset and investments totalled $770-million, mainly owing to the divestment of part of Vale’s interest in the Mozambique-based Moatize coal mine and the Nacala Logistics Corridor to Mitsui & Co.

Net revenues came to $8.52-billion in the quarter, 8.1% lower than in the previous period, negatively impacted on by seasonally lower sales volumes for the ferrous minerals business unit and planned maintenance shutdowns and operational disruptions in the base metals unit.

Total costs and expenses rose 22.3% in the period to $5.12-billion.

Vale’s cost and freight (CFR) dry metric ton (dmt) reference price for iron-ore fines (excluding run of mine ore) increased from $79.1/t in the fourth quarter to $86.7/t, 1% above the average Platts IODEX 62% price of $85.6/t in the quarter.

Iron-ore started the quarter on a rising trend, reaching $95.05/t in February, the highest level since August 2014, supported by higher mill demand in China. Prices averaged $85.64/dmt, also the highest quarterly average since the third quarter of 2014, and 20.9% higher than in fourth quarter of 2016.

Vale lifted iron-ore output in the quarter to 86.2-million tonnes despite inclement weather. The miner boosted iron-ore output by 11.2% over the comparable quarter of 2016, despite production falling 6.7% over the December quarter, resulting in 6.2-million tons lower output over the prior quarter as “usual weather-related seasonality” in the first quarter impacted on the performance of the northern system.

The year-on-year improvement was mainly attributable to the ramp-up of the giant S11D and Itabiritos projects, in the south-eastern system.

Meanwhile, cash generated from operations was $4.06-billion, $252-million lower than earnings before interest, taxes, depreciation and amortisation.

Vale took a big bite out of its outstanding debt load, repaying $2.27-billion to reduce net debt to about $23-billion as at the end of the first quarter. After the quarter, the miner reported it had already paid $740-million in April and sent notice to redeem another $300-million of debt in early May.

Capital expenditures in the first quarter totalled $1.11-billion, comprising project-related investments of $587-million and sustaining capital of $526-million. The S11D project continued its ramp-up, advancing according to plan. Physical progress on the doubling of the railway reached 66%, with 367 km completed up to March. Physical progress on the onshore expansion reached 89%.

Vale’s NYSE-listed stock fell to a low of $8.26 apiece on Thursday, having gained more than 10% since the start of the year.