Feb. 11 (Bloomberg) -- Vale SA, the world’s biggest iron- ore producer, said fourth-quarter profit rose less than analysts expected on increased expenses from the longest strike in the company’s history. Shares fell on the costs.

Fourth-quarter net income increased 11 percent to $1.52 billion, or 28 cents a share, from $1.37 billion, or 26 cents, in the year-earlier period, Rio de Janeiro-based Vale said yesterday in a regulatory filing. That is less than the 31 cents a share average of 13 analysts’ estimates compiled by Bloomberg.

Iron-ore and nickel volumes declined during the quarter as falling Chinese demand for iron and strikes at nickel mines cut exports, JPMorgan Chase & Co. analyst Rodolfo De Angele said in a note to clients. The strikes also boosted costs because of the expenses of restarting production, he said. Vale had a $236 million expense related to the nickel unit strike in Canada.

The company will likely recover after a “transition quarter” and “is still a solid value story,” said De Angele, who rates Vale “overweight.”

Vale declined 1.14 reais, or 2.7 percent, to 41.06 reais in Sao Paulo trading at 9:26 a.m. New York time.

About 3,300 employees at Vale’s Sudbury nickel and copper mine in Canada walked out on July 13 when contract talks broke down, leading to the longest strike in Vale’s 67-year history. About 75 percent of Vale’s nickel production comes from Canada, where its second-biggest mine operation at Voisey’s Bay was halted by a strike that started Aug. 1.

Vale said on Feb. 5 that it is operating Sudbury’s smelter at 50 percent capacity and heading towards full capacity. The company said on Jan. 25 it planned to resume production at Voisey’s Bay using non-striking labor.

Banco BTG Downgrade

Banco BTG Pactual SA downgraded Vale shares to “neutral” from “buy” and cut a target price by 10 percent “to reflect a weaker improvement in earnings in the early part of 2010, and a more negative risk-reward profile,” analyst Edmo Chagas said in a report today.

“We were surprised by the significant 19 percent increase in costs and expenses quarter-on-quarter,” Chagas said. “We do not expect to see cost trending lower short-term.”

To contact the reporter on this story: Helder Marinho in Rio de Janeiro at hmarinho@bloomberg.net "

Last Updated: February 11, 2010 09:34 EST