Brazil Vale well poised for growth with cash, credit
Mon Nov 3, 2008 3:05pm EST
reuters.com
* Vale has $15.3 bln cash position, $11 bln credit lines
* Vale giving "no discounts" on ore prices to clients
* Vale not paying client freight, withdrew term increase
By Reese Ewing
SAO PAULO (Reuters) - Brazilian iron ore miner Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz)(RIO.N: Quote, Profile, Research, Stock Buzz) is well poised to grow organically or through acquisition, with more than $15 billion in cash and $11 billion in available credit lines, the company said on Monday.
"We are very well poised to explore our growth options. We have cash holdings at $15.3 billion," Financial Director Fabio Barbosa told analysts at the New York Stock Exchange. "We've put together $11 billion medium- to long-term credit lines."
"Cash is not king right now. It is God," said Barbosa.
Vale Chief Executive Roger Agnelli, also speaking at the NYSE, said the world's largest iron ore miner would be looking only for very good opportunities when considering acquisitions, if they should arise.
"Now is the time to be aggressive internally, cut costs, invest in infrastructure and capacity," said Agnelli. "Our investments actually bring more value to our shareholders than an acquisition does."
Agnelli said Vale would buy back shares and invest to expand iron ore mining capacity and upgrade the railway at its Carajas mine in northern Brazil. It also would rebuild ore stocks at ports -- now virtually zero.
"The price of our stock implies a major disaster is ahead in 2009, much bigger than what we foresee today," said Agnelli. "So, we see our stock as the best investment right now."
The executive said the company's recent announcement to cut iron ore output by 10 percent, or 30 million tonnes, would be adequate to address the fall in world ore demand.
"Humbly speaking, it's enough, for a while. Other companies are going to cut production, I have no doubt," he said adding that he thought as many of half of small iron ore producers could go out of business next year.
Vale could pare back its investment plan of over $14 billion, the executive said, but was still assessing its options.
Agnelli said the company would slow the ramp up of its Goro and Onca Puma nickel projects in New Caledonia in the South Pacific and in northeastern Brazil, respectively, given the volatility on world metals markets. Nickel prices have fallen sharply in past months.
Goro's autoclave operations are expected to start up in December-January with the first metal forecast to be produced in April 2009. The Onca Puma project will first start in July 2009, with the second production line due by January of 2010.
CHINESE MILLS
Agnelli denied reports that Vale was paying freight costs for ore shipments to Chinese clients but confirmed that the company had retracted its request to increase iron ore term prices with Asian steel mills.
"There are a lot of rumors that Vale is paying freight." said Agnelli. "We are selling ore to China on an FOB basis."
Two trade sources from Asia said earlier on Monday that Vale had retracted its demand for a price increase and was paying freight rates to some buyers in China.
Agnelli said the Australian iron ore miner Rio Tinto was covering freight costs for ore to Chinese mills and suggested that it may have been confused with Vale due to its stock market ticker (RIO.L: Quote, Profile, Research, Stock Buzz) and Vale's (RIO.N: Quote, Profile, Research, Stock Buzz).
"We are not paying the freight, clearly," said Agnelli.
Agnelli also flatly denied that the company was offering any discounts to clients.
"No," Agnelli said to a question from analysts on whether Vale was offering discounts to clients.
"All I can say is that we have withdrawn the request for the 12 percent price increase (for Chinese mills)."
(Editing by Peter Murphy and David Gregorio) |
