Brazil's Vale Scraps Dividend in Face of Metals Slump--Update
January 29 2016 - 1:09PM
Dow Jones News
By Rogerio Jelmayer and Paul Kiernan
SÃO PAULO--Brazilian mining giant Vale SA is proposing to scrap
dividends this year for the first time since it was privatized in
the late 1990s, the latest symptom of a deep and prolonged slump in
commodity prices felt from South America to Australia.
Management at Vale, the world's top producer of iron ore and
nickel, announced the zero-dividend proposal late Thursday as part
of the company's latest effort to shore up cash amid the downturn.
It must still be approved by Vale's board of directors, and,
ultimately, by its shareholders at the company's annual meeting in
April.
"As the year progresses and we have more clarity on the market
scenario, the board of directors may decide on the distribution of
some remuneration to shareholders, provided that there is
sufficient cash flow generation," the company said.
Also on Friday, Ratings firm Standard & Poor's downgraded
Vale to one level above junk--a BBB- rating--saying low commodities
prices will continue to pressure the company's balance sheet and
make asset sales difficult. The mining company offered no immediate
comment on the move.
Vale's move to eliminate its dividend comes as slackening demand
for commodities, notably from China, has undermined prices for a
wide range of raw materials from iron ore, copper, and nickel to
oil, natural gas, and coal. The tough trading environment has
squeezed mining and oil-industry profit margins, prompting drastic
cutbacks in spending as well the suspension or reduction of cash
payments to investors.
Anglo American PLC has suspended its dividend while other mining
groups reduced their payouts last year, such as
Phoenix-basedFreeport-McMoRan Inc., Glencore PLC, Cliffs Natural
ResourcesInc., Peabody Energy Corp., and Vale itself.
The Brazilian group had previously cut dividends from an
all-time high of $9 billion in 2011 to $1.5 billion last year. But
executives had said as recently as December that Vale might pay "a
small dividend" this year.
Since then, however, the company's situation has appeared to
deteriorate. Facing criminal charges and a $5 billion civil lawsuit
in relation to a catastrophic dam break at its Samarco
joint-venture in November, Vale's stocks and bonds have suffered
heavy losses. Its publicly traded notes due 2022 have fallen to as
low as 67 cents on the dollar in recent weeks, while its shares
have fallen 32% since the end of 2015.
"I think it's the right decision for the time being," said Leila
Almeida, head analyst at Rio-based investment consultancy Lopes
Filho & Associados. "No company can give itself the luxury of
paying dividends to shareholders if that means bleeding cash."
Speculation about big mining companies' dividend plans has been
a hot topic in financial markets. But of the top three iron-ore
producers, Vale is the first to do away with shareholder
remuneration altogether.
Suspending dividends frees up mining companies to spend
available cash paying down debt, closing unprofitable operations
and investing to make existing facilities more efficient. Mining
companies increasingly will need any available cash in the coming
years to make payments on debt picked up during the boom years,
analysts say.
Vale's decision to scrap dividends comes as the company is
investing heavily to finish a sprawling $16 billion mining complex
in the Brazilian Amazon known as S11D. The operation will increase
the company's iron-ore output by more than 25% and sharply reduce
its costs, though many have questioned the wisdom of ramping up
production amid a glut in the market.
Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and Paul
Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
January 29, 2016 12:54 ET (17:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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