By Paul Kiernan
RIO DE JANEIRO--Brazilian mining giant Vale SA on Friday ruled
out issuing debt to maintain its dividend payment next year, as a
heavy investment program and the lowest iron-ore prices in more
than five years squeeze the company for cash.
"The answer is no, we would not increase leverage to pay the
dividend," Chief Financial Officer Luciano Siani said at Vale's
annual investor day event in London.
Analysts increasingly expect Vale to announce in coming weeks a
cut to its 2015 dividends, as prices for its flagship commodity,
iron ore, are a little more than half year-earlier levels. The
company paid $4.2 billion in dividends in 2014.
That could be hard to repeat based on current expectations for
Vale's performance next year. Vale has acknowledged average market
estimates for its 2015 earnings before interest, taxes,
depreciation and amortization, or Ebitda, of around $13.5 billion.
The company projects capital expenditures of $10.2 billion next
year.
Vale says it could raise between $5 billion and $10 billion by
setting up joint ventures in some of its businesses, selling
others, and potentially offering shares in its base-metals division
during the second half of 2015. Canaccord Genuity estimated this
week that the latter deal could haul in between $5 billion and $8
billion alone if Vale decides move forward with it.
But with the expected timing of such transactions, as well as
Vale's production schedule, "backloaded" toward the middle and end
of 2015, company will likely exercise caution in January when it
announces the minimum dividend payment.
"It's likely that whatever the minimum dividend is set, that
there will be complementary distributions in October contingent on
what happened during the year," Mr. Siani said.
Garrett Nelson, an analyst at BB&T Capital Markets in
Richmond, Va., said in a note this week that he expects Vale to pay
$3 billion in dividends next year. While that would still imply an
"attractive" 6.8% yield on current stock price, it would be little
more than a consolation prize to investors who have seen Vale's
shares lose almost half their value year-to-date.
"The problem from a total return perspective is that the yield
could be more than offset by depreciation in the stock price," Mr.
Nelson said.
Alex MacDonald in London contributed to this report.
Write to Paul Kiernan at paul.kiernan@wsj.com
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Paul Kiernan
Correspondent - Rio de Janeiro
+55(21)3553-1272
+55(21)9 7564-4495
@dowjonesrio
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