Vale SA (ADR) (NYSE:VALE) is one of the world's largest iron ore miners. That's been a tough business since commodity prices peaked in 2011. However, there was a glimmer of hope in the second quarter for this giant miner -- just don't read too much into it.

More than ever
Vale's second-quarter iron-ore production of 85.3 million tonnes was more than it's ever produced in a second quarter before. With iron ore prices still in the doldrums, that's a mixed blessing. However, there was a positive bit of news: Vale was able to increase what it got paid for its iron products from $46 a tonne in in the first quarter this year to $50.60 a tonne in the second -- which is one of the reasons revenues were up $725 million sequentially.

Giant piles of iron pellets. Source: Lars Lentz, via Wikimedia Commons.

But year-over-year results looked pretty ugly. Revenues in the iron-ore business, for example, fell to roughly $3.4 billion in the second quarter, compared with $5.4 billion in the year-ago period. The company's smaller base metals, coal, and fertilizer divisions all saw revenues decline year over year in the quarter, too. That pushed net operating income from about $9.9 billion a year ago to a touch under $7 billion in the just-ended quarter, inching slightly ahead of analyst expectations of roughly $6.85 billion.

Underlying earnings, meanwhile, were $0.19 a share in the second quarter, down from $0.38 a share last year. The second quarter's showing was a vast improvement over the first quarter, however, since the impact of currency movements was much less pronounced in the second quarter than in the first stanza of the year, when the depreciation of the Brazilian real drove earnings deep into the red.

 Region Percent of 
Q2 Revenues  
North America 8.2%
South America 18%
Europe 18%
Asia 51.1%
Rest of world 4.7%

That's important to note, because currency fluctuations were the largest driver of the large sequential improvement -- not an improving metals market. In fact, despite Vale's ability to get better prices for its iron ore, the pricing for the metal continued to decline in the second quarter.

Still a tough market
So Vale is still working through a difficult iron-ore market. But it's also working hard to improve its business. That includes cutting costs and improving productivity. For example, Vale was able to produce more iron ore in the second quarter than in the first, but costs were essentially flat between the two periods. Meanwhile, costs were down roughly 15% year over year through June compared with the same six-month period in 2014. So Vale is, generally speaking, doing more with less. That's exactly what you'd expect from an industry leader in a commodity market downturn.

Although the company cut spending across the board year over year, including on growth investments, it hasn't stopped spending. In the quarter, roughly 70% of Vale's roughly $1.4 billion in capital spending went toward iron ore, with nearly all of that spending going toward growth projects. The biggest investment in iron ore right now is the company's S11D project, which it estimates is roughly half done, when you include the mine and related infrastructure.

Preparing for the future
So despite hitting a record in the second quarter, Vale is looking to produce even more iron ore down the line. While that sounds like a questionable decision in a downturn, there are two things to keep in mind. First, Vale's cash cost to produce and ship iron ore to China, which accounts for roughly 37% of the company's sales (Asia, in total, was roughly 50% of sales), were around $40 a tonne. And just looking at cash costs out of the mine, Vale was able to bring its costs down to $15.80 a tonne, down from $18.30 a tonne in the first quarter. So Vale's mines are making money despite the current low in iron-ore prices.

Second, iron-ore mines take a long time to get up and running. So you can't just wait for better times to start building a mine. However, when the S11D mine is fully operational, it will give Vale the flexibility to trim production at higher cost mines it runs (ultimately improving company margins) or, with any luck, sell more iron ore into an improving market. In fact, the improvements in the second quarter were partially supported by the ramping up of production at Vale's N4WS mine.

But spending during a downturn is still risky and definitely costly, which is why investors are watching Vale's debt load closely. On that score, the company's net debt, which reduces debt by cash on hand, was $26.5 billion at the end of the first half -- up around $3.3 billion over the year-ago period. So while spending for the future makes sense in some ways, it's having a notable impact on the company's finances that you'll want to keep a close eye on.

It was another generally weak quarter overall for Vale as it works through a tough spell in iron ore. No surprise there. And while the company is rightly trumpeting its successes, leading to an early jump in the company's shares on the news, there are still a lot of negatives to watch. That said, so far, Vale appears to be surviving the supply/demand storm that will eventually help turn the iron-ore market higher again, all while the company gets better at what it does. That's a potential recipe for a much higher stock price -- but not until iron ore prices turn higher again.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.