Balance sheet position
At Vale Day in December 2017, Vale (VALE) had committed to reducing its net debt to $10 billion from $21 billion. While it was at that time seen as quite an ambitious target by analysts, Vale has achieved its aim. During Q3 2018 results, Vale reported that its net debt totaled $10.7 billion, which is the lowest level since Q3 2009. The lower debt has reduced the company’s gross interest by 35%.
Vale’s debt started escalating as it embarked on its growth phase, particularly with the S11D project. The start of the project almost coincided with the peak in the commodity price cycle (XME).
Vale’s peers didn’t face the same situation because the heavy capital deployment stage for peers Rio Tinto (RIO), BHP (BHP)(BBL), and Cleveland-Cliffs (CLF) is over for now. Now the company’s growth capex is almost done.
Comfortable debt position
During Vale Day in December 2018, the company mentioned that it has reduced its net debt to $10 billion. It added that it still has too much cash and gross debt on the balance sheet, which has a carrying cost of 2.6% per year.
Luciano Saini Pires, Vale’s executive director of finance and investor relations, mentioned during Vale Day that the company has reached the $10 billion target and it doesn’t intend to go beyond that. He also pointed out that there are other opportunities to manage the balance sheet beyond reducing debt such as preferred shares of its subsidiary.
Moreover, Vale doesn’t expect significant divestitures going forward, mostly because most of its non-core assets are now held as agreements, which makes it somewhat complicated to sell them.