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RIO DE JANEIRO, Dec 20 (Reuters) - Brazil's Vale SA , the world's No. 2 mining company, said on Thursday that it has decided to take a $4.2 billion write-down on its nickel and aluminum assets, increasing its fourth quarter write-downs to $4.65 billion.
The giant miner said in a securities filing that it will book the non-cash, pre-tax charge in the fourth quarter.
Vale also reduced its estimate of the market value of its 22 percent share of Norwegian aluminum producer Hydro by $1.3 billion to below the book value of its investment, which will impact the company's fourth quarter net earnings.
The main project affected by the write-down is the Onça Puma nickel project in Para state, which has been having trouble with its smelting operation and needs to have a furnace rebuilt.
Vale said that, given "the current market environment for ferronickel" it had decided on an impairment charge before tax of $2.848 billion, which is 75 percent of the nickel project's total book value as reported on September 30.
Vale said on Wednesday it will take charges of about $448 million against earnings in the fourth quarter after settling tax disputes in Switzerland and Brazil.
That brings to $4.65 million the total writedown in the fourth quarter, or more than two and a half times Vale's third quarter profits.
Net income in the three months ending Sept. 30 was $1.67 billion, compared with $4.94 billion a year earlier. Vale is the world's largest producer of iron ore, the main ingredient in steel.
Vale said the "downward volatility of aluminum prices and the macroeconomic uncertainties about the European economy" had contributed to reducing the market value of its share of Hydro.
"Based on Hydro share prices at September 30, 2012, we are recognizing an impairment charge before tax of $1.3 billion, which will impact our 4Q12 net earnings," the vale filing said.
Vale said the write-downs will not affect its cash flow.
"Despite these charges, we remain confident on the long-term market fundamentals of the global nickel market," it said.
Vale will report quarterly earnings on Feb. 27, 2013