With debt coming due in upcoming years, the uncertainty regarding the success of management’s initiatives to reduce net debt through asset sales should keep on weighing on Vale’s (VALE) stock in the short-term to medium-term.
Vale is still in investment phase
Vale’s stretched balance sheet and substantial future capex (capital expenditure) needs don’t help matters either. And the company is working against a backdrop of lackluster commodity prices. Worsening free cash flow and leverage ratios going into 2016 remain key concerns for investors. While most of its peers are done with the substantial investment phase and are reaping the benefits of the economies of scale, Vale still has high capex plans for S11D. This will continue to put a strain on free cash flow. Project financing is another potential risk.
Another challenging year
Vale is expected to have another challenging year in 2016. Cost-cutting and volume growth, especially in iron ore, is expected to continue going forward. This would place Vale at a very advantageous position on the overall industry cost curve. But the further downside to iron ore prices doesn’t bode well for a company that gets the majority of its revenues from this segment.