By Paul Kiernan
RIO DE JANEIRO--Brazilian mining giant Vale SA, the world's
largest iron-ore producer, said Friday it plans to slash dividends
to the lowest level in eight years in a bid to shore up cash amid
spiraling commodity prices.
Vale's management proposed to the board a $2 billion minimum
dividend payment for 2015, down from $4.2 billion last year and the
lowest outlay since 2007.
The move comes as mining companies world-wide are fighting to
weather a brutal downturn in mineral commodities due to
oversupplied markets and slowing demand from China. Iron ore has
been among the hardest-hit, with benchmark prices Friday settling
at a nearly six-year low after falling by half since early
2014.
Vale is in a particularly tough spot among the big, diversified
miners, partly because of its heavy exposure to iron ore. But red
tape and an inefficient business environment in Brazil meant the
company was also slower than its Australia-based competitors to
expand mines during the commodity boom.
As a result, the drop in prices has come as Vale is in the
middle of a nearly $20 billion expansion of its Carajás iron-ore
operation in the Brazilian Amazon. Though the company is determined
to finish the project on schedule next year, that means it will
have less cash available than rivals such as Rio Tinto PLC, which
have already finished the bulk of their projects.
"The dividend proposed preserves Vale's sound capital structure
and is consistent with the current scenario, in which we will
invest to complete our key growth projects such as [Carajás] while
facing an environment of lower and volatile commodities prices, "
Vale said in a news release. The company added that it is
"intensifying" efforts to cut costs and capital expenditures, sell
assets and find partners.
Vale's shares have fallen 46% over the past 12 months, compared
with an 11% drop for London-headquartered Rio Tinto, the world's
No. 2 iron-ore producer. The company's preferred stock in São Paulo
closed 3.9% lower on Friday at 16.19 Brazilian reais ($6.21).
Vale's credit ratings, once among the best of any Brazilian
company, have also suffered. Moody's Investors Service lowered its
outlook for Vale to stable from positive on Thursday, days after
Standard & Poor's downgraded Vale to BBB+ from A-.
"The company's credit profile and operations remain solid, but
incorporate the deterioration in market fundamentals for iron ore
and base metals, pressuring commodities prices in a period in which
Vale is undergoing a large expansion phase with substantial capital
expenditures, " Moody's said.
Write to Paul Kiernan at paul.kiernan@wsj.com
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