Brazil's Vale Makes Billion Dollar Cuts As Stock Down 93% From 2005
Hi-ya! Murilo Ferreira, chief executive officer of Vale, said the Brazilian mining giant will cut its investment plans by $1.4 billion next year. His company is the worst performing Brazilian large cap over the last five years. (Photo by Dado Galdieri/Bloomberg)
If you want to know why Brazil’s stock market is such a piece of trash these days, all you have to do is look at its two biggest components, Petrobras and mining giant Vale. Petrobras is facing its worse political crisis ever. It’s become the Enron of Brazil. But Vale has over-investment and China to blame. And its share price is down 92.5% since 2005 compared to Petrobras’ 71% decline.
Sadly, Vale makes Petrobras look good.
Bottom feeding hedge funds and deep value investors may like Vale. But this company is now hunkering down and battering down the hatches. Its executives said it will cut $1.4 billion from its capital expenditures next year, taking it down to $6.2 billion in investments. Just four short years ago, Vale was pumping $18 billion into its worldwide projects, most of which are domestic. That’s a lot of money coming out of Brazil’s economy that its two biggest enterprises are no longer putting back in.
Speaking in New York on Wednesday, Vale CEO Murilo Ferreira said next year isn’t going to get much better. China is Vale’s biggest client. It’s no longer busy building new cities like it used to. Demand for nickel, copper and Vale iron ore pellets, its mainstay export, is on the wane. He said the company will produce around 26 million tons less iron ore next year on account of weak demand.
With the stock in the gutter and China providing no support any more, Ferreira hinted that Vale may kill its dividend program next year in order to preserve cash.
Fitch Ratings put Vale’s credit risk on the negative watch list, meaning it could be stripped of its investment grade status this year. |
