(Adds details on potential new deals)
By Christian Plumb
NEW YORK Nov 29 Vale SA, the world's No. 1 iron
ore producer, is taking advantage of recent gains in mineral and
metal prices and successful cost-cutting steps to rethink the
pace of an asset sale plan to bring down debt, executives said
Higher ore recovery and price realization may help Vale
generate $2.2 billion next year in free cash flow - the money
left for bond and shareholders after all expenses are paid -
accelerating debt reduction plans, Chief Executive Officer
Murilo Ferreira told the company's investors in New York.
Ferreira and other executives expect the announcement soon
of several, unnamed asset divestitures that could help Vale trim
net debt to a range between $15 billion and $17 billion next
year. Last year, in the middle of a rout in ore and metal
prices, Ferreira set a target of disposing of non-essential
assets to help cut debt by $10 billion.
"The key message is that we are in a much more comfortable
position to be very thoughtful about the divestitures," said
Chief Financial Officer Luciano Siani at the same event. "We
shall not fool ourselves, we have to keep on pursuing
relentlessly that goal" for net debt.
The remarks underscore Ferreira's strategy of making Vale a
more cost-competitive player in a market hammered by a global
slowdown and steel industry overcapacity. With commodities
prices recovering as the new year approaches, his tack is paying
off faster than expected and allowing Vale to avoid selling
units that could add to growth once the world economy recovers.
Iron ore on the Dalian Commodity Exchange is up
180 percent this year. Some investors, however, questioned
whether Vale may be relying too much on iron ore and metal price
behavior to boost returns and cut debt.
"They're doing all the right things. The question is, can
commodity prices hold," said Charles Bradford, an analyst at
Bradford Research. Relying too much on prices could make results
more volatile over time, he said.
Still, cost-cutting efforts are helping to ease Vale's
capital spending needs for the years ahead. The company cut the
budget for planned investments to $4.5 billion next year and
$2.9 billion in 2021 from an expected $5.6 billion this year.
For next year, Vale expects to produce between 360 million
tonnes and 380 million tonnes of iron ore, the main ingredient
for steel. It set a target of 400 million tonnes to 450 million
tonnes in 2021.
Preferred shares, Vale's most widely traded class
of stock, fell 3.2 percent to 26.62 reais in late Tuesday
afternoon trading in São Paulo.
While investors welcomed the goals from management, the
decline had to do with profit-taking activity among iron ore
traders, they said.
Ferreira told a news conference after the investor meeting
that plans to sell Vale's fertilizers unit are on track and a
deal could be announced soon, without elaborating. Reuters first
reported on June 17 that Mosaic Co was eyeing the unit,
with payment being negotiated in cash and stock.
In addition, despite the recent rally in ore prices, a deal
by which Vale would sell a stable stream of iron ore shipments
to investors for a long period remains "an option," Ferreira
said. Reuters first reported the plan, by which Vale would raise
up to $10 billion through a 30-year sale of future ore output,
on Aug. 3.
He is also hopeful that the companies that are members of
Vale's controlling shareholder bloc will renew terms of their
accord before the end of this year. The accord expires around
April or May next year.
(Writing by Guillermo Parra-Bernal and Roberto Samora
Additional reporting by Gustavo Bonato in São Paulo; Editing by