Vale SA (VALE5) reduced its investment budget for a third straight year as the world’s largest iron-ore miner focuses on boosting returns at existing operations.
The Rio de Janeiro-based company will invest $14.8 billion, according to its 2014 business plan released in a statement today. That compares with this year’s $16.3 billion budget and a $14.5 billion average estimate of 11 analysts surveyed by Bloomberg last week.
Vale this year sold assets worth at least $3 billion, cut costs by $2 billion and boosted dividends as it focuses on its profitable iron-ore unit in a bid to regain investors’ trust after shares underperformed main rivals. Next year’s spending is the lowest since 2010.
“We are strongly committed to deploying capital only in world-class assets with large reserves, low costs, high quality products and opportunities for low-cost brownfield expansions,” Chief Executive Officer Murilo Ferreira said.
Output of iron-ore, the source for most of Vale’s profits, probably will increase to 312 million metric tons in 2014 from an expected 306 million tons this year, the company said today. That’s 4.3 percent less than the 326 million tons that Vale was forecasting for 2014 a year ago.
Vale has cut its forecast of additional iron-ore production next year by 70 percent as it has logistics shortages and delays, UBS AG analysts led by Andreas Bokkenheuser said.
“We believe insufficient infrastructure capacity and ongoing license delays are at the core of these delays,” the analysts wrote in a note to clients today. “We are cautiously optimistic about management additionally reducing capex.”
Nickel production next year is expected to gain 11 percent to 289,000 tons compared to the 2013’s target while copper output is forecast to expand at a similar pace to 405,000 tons. Coal output is likely to decline 14 percent to 10.7 million tons and potash production is forecast to drop 1.8 percent to 540,000 tons, the company said today.
The company said today it will continue divesting assets, including selling almost half its stake in the Nacala corridor logistics project in Mozambique and finding partners for its fertilizer and coal units. Vale expects to sign an agreement with a partner for its Kronau potash project in Canada in coming weeks, head of Fertilizers and Coal Roger Downey said at today’s investor presentation in New York, without naming the investor.
“We met a lot of interest from global fertilizer players, so the idea is to bring in strategic players into this business,” he said. “To unlock all the value that we have in our rich portfolio, we are bringing in partners both at the project level and or the business itself.”
Vale will seek to pay next year at least a similar minimum dividend agreed for 2013, or $4 billion, Chairman Dan Conrado said during the investor presentation.
“Vale’s dividend policy is strictly linked to its cash flow and I am very positive about the financial capacity to distribute sizable dividends simultaneously to the funding of its investment plan,” he said. “The company’s policy is to return excess cash to shareholders.”
The business plan for next year includes investments of $9.3 billion for new projects, $4.5 billion dedicated to sustain existing operations and $900 million for research and development. Vale will focus 85 percent of its mineral exploration expenditures in four countries, including Brazil, Canada, Australia and Peru.
Vale, the worst performer among the top three mining stocks this year, is seeking to shore up investor confidence by reducing expenses, focusing in fewer projects with higher returns and resolving disputes with Brazil. The company on Nov. 27 agreed to pay 22.3 billion reais ($9.5 billion) to settle a decade-long tax dispute with the Latin American country over profits at its foreign subsidiaries.
The stock is down 20 percent this year while BHP Billiton Ltd., the world’s largest miner, lost 0.5 percent and Rio Tinto Group, the second-biggest, fell 8 percent in London.
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