These Factors Could Boost Vale’s Cash Flows Going Forward


Dec. 11 2018, Updated 7:30 a.m. ET

Boosting cash flows

Vale (VALE) is expecting its cash flows to significantly expand going forward. The company has identified several levers to help future cash flows. Let’s take a look at those levers.

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Streamlined and optimized asset portfolio

As we’ve already seen in this series, the company is looking to streamline its portfolio especially in base metals (DBB) to keep only assets that can provide returns on investment. In the past, Vale’s peers BHP (BHP), Rio Tinto (RIO), and Freeport McMoRan (FCX) have gone for portfolio optimization and streamlining in order to simplify their structures, reduce costs, and maximize profits.

Improvements and cost-cutting in the ferrous minerals division are expected to result in $2.7 billion EBITDA (earnings before interest, tax, depreciation, and amortization) by 2023 assuming current prices and premiums. The turnaround in base metals could be a $3.9 billion EBITDA opportunity by 2023.

In addition to these, the Moatize ramp-up, gross debt reduction, and liability management initiatives should contribute to $1.8 billion in cash flows by 2023.

Optimized capital expenditure

Vale stressed that its capex will remain low going forward. It guided for investments of $4.4 billion for 2019 and $4.5 billion per year for the next few years.

Reduced cash flow drags

The company also mentioned several factors that could drag down the company’s cash flow. These factors include Samarco, pre-operating expenses, and financial expenses. Going forward, the company expects those to decline. Vale is spending ~$300 million on Samarco. The company expects that figure to decline to zero by 2023. As for pre-operating expenses, Vale had $180 million in 2017. It expects these expenses to vanish going forward. Financial expenses could also decline as the company focuses on deleveraging its balance sheet.

Through the above-mentioned variables, Vale expects a rise of 50% in its EBITDA in five years, resulting in an extra $7.7 billion EBITDA opportunity by 2023.


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