Ore rally, cost cuts giving Vale room to rethink asset sales – by Christian Plumb (Reuters U.S. – November 29, 2016)


Vale SA, the world’s No. 1 iron ore producer, is taking advantage of recent gains in mineral and metal prices and successful cost-cutting steps to rethink the pace of an asset sale plan to bring down debt, executives said on Tuesday.

Higher ore recovery and price realization may help Vale generate $2.2 billion next year in free cash flow – the money left for bond and shareholders after all expenses are paid – accelerating debt reduction plans, Chief Executive Officer Murilo Ferreira told the company’s investors in New York.

Ferreira and other executives expect the announcement soon of several, unnamed asset divestitures that could help Vale trim net debt to a range between $15 billion and $17 billion next year. Last year, in the middle of a rout in ore and metal prices, Ferreira set a target of disposing of non-essential assets to help cut debt by $10 billion.

“The key message is that we are in a much more comfortable position to be very thoughtful about the divestitures,” said Chief Financial Officer Luciano Siani at the same event. “We shall not fool ourselves, we have to keep on pursuing relentlessly that goal” for net debt.

The remarks underscore Ferreira’s strategy of making Vale a more cost-competitive player in a market hammered by a global slowdown and steel industry overcapacity. With commodities prices recovering as the new year approaches, his tack is paying off faster than expected and allowing Vale to avoid selling units that could add to growth once the world economy recovers.

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