Vale Looks to Sell Core Assets to Reduce Debt – by Paul Kiernan and Rogerio Jelmayer (Wall Street Journal – February 25, 2016)

http://www.wsj.com/

RIO DE JANEIRO—Brazilian mining giant Vale SA became the first of the so-called Big Three iron-ore producers to put core assets on the block as it seeks to reduce high debt levels amid the commodity downturn.

Chief Executive Murilo Ferreira said Thursday in a conference call that Vale wants to reduce its net debt to $15 billion within 18 months, from $25.23 billion at the end of the fourth quarter. But given the uncertain outlook for prices of iron ore and other raw materials, Vale is “actively exploring more aggressive actions for this deleveraging, including the sale of core assets,” Mr. Ferreira said.

“We aren’t attached to assets in any commodity, and we will evaluate all options,” he said.

The largest producer of iron ore and nickel, Vale had long vowed to hold on to world-class operations in these and other key areas. Its biggest rivals in the global iron-ore trade, London-based Rio Tinto PLC and Australia’s BHP Billiton Ltd., haven’t opened the door to selling core assets.

But around the world, mining companies are considering moves they once said were unthinkable. With the global commodity slump entering its fifth year, firms are being forced to look for new ways to shore up balance sheets burdened by debt they incurred when times were better.

Phoenix-based Freeport-McMoRan Inc. said Feb. 15 that it reached a deal to sell a $1 billion stake in one of its best copper mines to pay back creditors. London-based Anglo American PLC said last week that it would consider selling its $13.5 billion Minas-Rio iron-ore project in Brazil—an operation once envisioned as key to the company’s future—in two or three years.

Mr. Ferreira’s comments mark a sharp departure from his prior strategy of offering assets only in peripheral businesses such as energy and logistics. Vale previously assured investors that its cash flow would exceed capital spending after the company finished work on major expansion projects such as its $14 billion S11D mine in the Brazilian Amazon, enabling it to pay down debt.

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