By Paul Kiernan 

RIO DE JANEIRO--Brazilian mining giant Vale SA, the world's largest iron-ore producer, said Friday it plans to slash dividends to the lowest level in eight years in a bid to shore up cash amid spiraling commodity prices.

Vale's management proposed to the board a $2 billion minimum dividend payment for 2015, down from $4.2 billion last year and the lowest outlay since 2007.

The move comes as mining companies world-wide are fighting to weather a brutal downturn in mineral commodities due to oversupplied markets and slowing demand from China. Iron ore has been among the hardest-hit, with benchmark prices Friday settling at a nearly six-year low after falling by half since early 2014.

Vale is in a particularly tough spot among the big, diversified miners, partly because of its heavy exposure to iron ore. But red tape and an inefficient business environment in Brazil meant the company was also slower than its Australia-based competitors to expand mines during the commodity boom.

As a result, the drop in prices has come as Vale is in the middle of a nearly $20 billion expansion of its Carajás iron-ore operation in the Brazilian Amazon. Though the company is determined to finish the project on schedule next year, that means it will have less cash available than rivals such as Rio Tinto PLC, which have already finished the bulk of their projects.

"The dividend proposed preserves Vale's sound capital structure and is consistent with the current scenario, in which we will invest to complete our key growth projects such as [Carajás] while facing an environment of lower and volatile commodities prices, " Vale said in a news release. The company added that it is "intensifying" efforts to cut costs and capital expenditures, sell assets and find partners.

Vale's shares have fallen 46% over the past 12 months, compared with an 11% drop for London-headquartered Rio Tinto, the world's No. 2 iron-ore producer. The company's preferred stock in São Paulo closed 3.9% lower on Friday at 16.19 Brazilian reais ($6.21).

Vale's credit ratings, once among the best of any Brazilian company, have also suffered. Moody's Investors Service lowered its outlook for Vale to stable from positive on Thursday, days after Standard & Poor's downgraded Vale to BBB+ from A-.

"The company's credit profile and operations remain solid, but incorporate the deterioration in market fundamentals for iron ore and base metals, pressuring commodities prices in a period in which Vale is undergoing a large expansion phase with substantial capital expenditures, " Moody's said.

Write to Paul Kiernan at paul.kiernan@wsj.com

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