Vale, the Brazilian mining giant shuns path of equity sales, “working hard” to close Moatize coal financing

(2015-09-17) The world’s top iron-ore miner is betting that cost cuts and growing market share will be enough to endure low prices, shunning the path of equity sales and halted dividends taken by rival Glencore.

Vale, the Brazilian mining giant which is also the largest nickel producer, is focused on reducing expenses further as the start of its lowest cost producing project approaches, Chief Executive Officer Murilo Ferreira told reporters in Belo Horizonte, Brazil, during an industry gathering.

“We aren’t studying a model like the one taken by Glencore, because we don’t consider it necessary for Vale,” Ferreira said, adding that he only has “superficial” knowledge of the operations of the Baar, Switzerland-based trader. “The Vale team did the diagnosis of the end of the supercycle at the right moment. There was an expressive reduction in Vale’s costs and there is a lot still to come.”

Glencore last week announced a plan to sell as much as $2.5 billion worth of new stock, cut spending and halt dividends in a bid to reduce $30 billion of debt by a third. Glencore’s billionaire Chief Executive Officer Ivan Glasenberg responded to some investors’ worries that a debt-laden balance sheet can’t withstand the rout in commodity prices. The Swiss commodities trader and miner said in a statement Tuesday that is selling as many as 1.3 billion new shares as part of the plan.

The Bloomberg Commodity Index, a measure of returns for 22 raw materials, has tumbled 27 percent in the past year. Slowing demand from China, the top consumer of metals, grains and energy, has raised concerns that supplies are in excess.

Coal project

Vale’s board will discuss the payment of a second US$1 billion installment for its 2015 dividend in a mid-October meeting as recommended by management earlier this year, Ferreira said. The company is also “working hard” to conclude by the end of the year the financing needed for its Moatize coal project in Mozambique, he said.

As Vale gets closer to starting its flagship S11D project next year, the need to take drastic decisions falls, Ferreira said. The Rio de Janeiro-based company expects to reduce the average cost for its iron ore delivered to China to $30.80 per dry metric ton by 2018 from $39.10 per ton in the second quarter, it said in a presentation last month, citing the implementation of S11D in northern Brazil.

“Every day that goes, we are a day closer to the opening of S11D,” Ferreira said. “Therefore, any measure of this type gets more distant.”

Source: Bloomberg

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