Brazil's Vale Set to Scrap Dividend
January 29 2016 - 5:00AM
Dow Jones News
SÃ O PAULO—Brazilian mining giant Vale SA is proposing to scrap
its dividends to save cash this year, the latest indication of how
the deep and prolonged slump in raw material prices is bearing down
on the industry.
Vale-—which is world's top producer of iron ore and nickel—said
that its executive board has proposed a "zero" dividend this year
to its supervisory board, which would then be subject to
shareholder approval at the company's annual meeting in April.
"As the year progresses and we have more clarity on the market
scenario, the board of directors may decide on the distribution of
some remuneration to shareholders, provided that there is
sufficient cash flow generation," the company said.
The move comes as slackening demand for commodities, notably
from China, amid ample supply has undermined prices for a wide
range of raw materials from iron ore, copper, and nickel to oil,
natural gas, and coal. The tough trading environment has squeezed
mining and oil industry profit margins, prompting drastic cutbacks
in spending as well the suspension or reduction of cash payments to
investors.
Anglo American PLC has suspended its dividend while other mining
groups reduced their payouts last year, such as Phoenix-based
Freeport-McMoRan Inc., Glencore PLC, Cliffs Natural Resources Inc.,
Peabody Energy Corp., and Vale itself.
The Brazilian group, which reduced the second tranche of its
2015 dividend by half to $0.10 a share, had said as recently as
last month that might pay "a small dividend" this year.
The slump has put pressure on mining companies' finances
too.
Earlier this month, Moody's Investors Service placed Vale's debt
on review for possible downgrade, citing slack demand for prices of
base metals, iron ore and other commodities because of slowing
growth in China. Moody's currently rates Vale at Baa 3, the lowest
of investment grades.
Vale also faces costs associated with last year's dam break at
Samarco Mineracao SA, a local joint venture that it owns with BHP
Billiton Ltd., which left 17 people dead.
Suspending dividends frees up mining companies to spend
available cash paying down debt, closing unprofitable operations
and investing to make existing facilities more efficient. Mining
companies increasingly will need any available cash in the coming
years to make payments on debt picked up during the boom years,
analysts say.
Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com
(END) Dow Jones Newswires
January 29, 2016 05:45 ET (10:45 GMT)
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