Bloomberg News

Vale Plans to Tap Debt Markets Next Year After Upgrade

November 29, 2011

(Corrects time frame for Ebitda data in 15th paragraph.)

Nov. 29 (Bloomberg) -- Vale SA, the world’s largest iron- ore producer, said it will tap debt markets in 2012 after Standard & Poor’s raised its credit rating last week.

The company is analyzing credit-market conditions because the European debt crisis hasn’t been “very helpful,” Chief Financial Officer Tito Martins said yesterday in an interview in New York after the company presented its 2012 investment plan. Vale’s upgrade to A- from BBB+ by S&P on Nov. 23 came at “a very good time” because the mining company has “huge” investments planned, Martins said.

“We will be in the market in the next year, I don’t have any doubt about that,” Martins said, adding that the company hasn’t yet decided on the size and timing of any potential issuance. “We have consistently accessed the market from time to time.”

Vale plans to invest $21.4 billion in 2012 in projects that will boost the output of commodities including iron ore and copper, it said yesterday. The company based in Rio de Janeiro forecasts 2011 spending will be between $18.5 billion and $19 billion, down from the $24 billion previously planned. Environmental licensing and labor constraints are creating “hurdles” for its expansion projects, Vale said yesterday.

The company last sold bonds in September 2010, Bloomberg data show. BHP Billiton Ltd., the world’s biggest mining company, sold $3 billion in three-, five- and 10-year notes on Nov. 16, its first bond issuance since 2009.

Lower Financing Costs

Vale has the flexibility and balance sheet to wait for the best moment and issue debt when it can guarantee lower financing costs, Jordi Dominguez, an equity analyst at Societe Generale SA in New York, said in a telephone interview yesterday.

“I don’t expect anything outside the normal course of business for Vale,” said Dominguez, who has a “buy” recommendation on the stock.

Vale dropped 1.6 percent to 38.85 reais in Sao Paulo. The stock has fallen about 20 percent during 2011, in line with the decline in the Brazilian benchmark Bovespa Index. BHP lost 23 percent in Melbourne during the period.

Vale paid a record $12 billion to shareholders through dividends and share buybacks this year, boosting capital returns after postponing its investment plan. The company regards its organic growth projects as a “priority” and finding possible acquisitions is “not easy” given current asset valuations, Vale Chief Executive Officer Murilo Ferreira said yesterday in New York.

‘Huge Discipline’

“I have a huge discipline in capital allocation,” Ferreira said. “The most important thing for us is to provide the right return to our shareholders.”

Ferreira, 58, who took over as CEO on May 22, wants to be more accountable and transparent and is showing a “conservative approach” with capital expenditures, Societe Generale’s Dominguez said.

“While we still anticipate that Vale will maintain an aggressive investment budget over the next five years, we believe that the company is adopting a more prudent -- and therefore less risky -- expansion plan,” Standard & Poor’s analyst Milena Zaniboni said in a Nov. 23 statement on Vale’s credit rating revision.

Expensive Deals

Recent prices paid for some mining assets have been too expensive, CFO Martins said. Vale shouldn’t compete with Chinese companies who pay “too much,” he said. Vale dropped out of the bidding for Johannesburg-based Metorex Ltd. in July after China’s Jinchuan Group Ltd. trumped its offer with a $1.36 billion bid.

“Multiples that we have seen in the markets, they have been too high,” Martins said.

Jinchuan is paying 34 times Metorex’s earnings before interest, tax, depreciation and amortization, or Ebitda, in the year ended June 30, 2009, the most recent 12 months for which finalized financial statements were available when the deal was announced, according to data compiled by Bloomberg. The Chinese company is paying 7.7 times Metorex’s Ebtida for the 12 months through June 30, 2010.

The median multiple from takeovers of seven comparable diversified mining companies in the past five years was 9.4, according to the data.

The price of iron-ore for immediate delivery to China, the largest user, has fallen 22 percent during 2011 and reached its lowest level in almost two years on Oct. 28 amid tighter credit conditions in the country and higher seasonal supply.

Iron ore with 62 percent iron content delivered to the Chinese port of Tianjin dropped 0.9 percent to $130.80 a metric ton today, its lowest level in three weeks, according to The Steel Index Ltd.

Prices won’t decline to less than $120 a ton next year “even in a stress scenario” because lower levels will put some Chinese and international producers out of business, Jose Carlos Martins, Vale’s director for iron ore and strategy, said during yesterday’s presentation.

--Editors: Robin Saponar, Jasmina Kelemen

To contact the reporter on this story: Simon Casey in New York at Juan Pablo Spinetto in Rio de Janeiro at

To contact the editor responsible for this story: Dale Crofts at

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