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Analyzing Vale’s Balance Sheet Position



Vale’s cash position and net debt

Vale S.A.’s (VALE) gross debt was $28.8 billion as of December 31, 2014. It decreased by $559 million from the $29.4 billion on September 30, 2014, and by $848 million from the $29.7 billion on December 31, 2013. The company’s cash position was $4.1 billion and net debt was $24.7 billion as of December 31, 2014.

In 2014, Vale repurchased $300 million of its bonds due in 2015. As of January 2015, the company had more than $9 billion in available and committed credit lines, while only $982 million will be maturing throughout the year.

Vale’s average debt maturity remained almost stable at 9.1 years. The average cost of debt after the above hedge transactions increased slightly to 4.54% per annum against 4.50% on September 30, 2014.

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Vale’s interest coverage

Interest coverage, measured by the last 12 months (or LTM) adjusted EBITDA- (earnings before interest, taxes, depreciation, and amortization) to-LTM interest payment ratio, was 8.6x against 11.1x on September 30, 2014.

Debt leverage, measured by gross debt to the LTM adjusted EBITDA, was 2.2x as of December 31, 2014. The gross debt to enterprise value (or EV) increased to 43.8% on December 31, 2014, against 38.6% in the previous quarter due to the fall in Vale’s market capitalization.

Balance sheet position of Vale’s peers

The balance sheet positions of Vale’s major peers, including Rio Tinto (Rio) and BHP Billiton (BHP), are in a better state than Vale’s. Rio has announced capital management plans to the tune of $2 billion. Including dividends, this results in a total return of almost $6 billion.

Rio’s net debt was $12.5 billion at 2014 year-end. BHP Billiton (BHP) had a net debt of $24.9 billion with a gearing of 22.4%. Cliffs Natural Resources (CLF), on the other hand, has a huge debt burden of $2.7 billion, which is quite large compared to its overall balance sheet.

It’s important to note that ETFs such as the iShares MSCI Global Metals & Mining Producers ETF (PICK) also provide exposure to the metals and mining sector. BHP and RIO form 28.9% of the fund’s total assets. CLF forms 2.9% of the SPDR S&P Metals & Mining ETF (XME).


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