Vale Reins in Largess as Miner Joins Dividend-Cutting Wave

  • Iron-ore giant cut 2015 dividend by $500m; shares advance
  • Annual shareholder payout trimmed to lowest since 2006

Vale SA is the latest commodities giant to take a scalpel to its dividend as a rout in metal prices deepens.

The world’s largest iron-ore and nickel producer said Monday it intends to pay $500 million in a second tranche of its 2015 dividend, half the $1 billion it proposed in January. If the new target is approved by Vale’s board in an Oct. 15 meeting, the company will be handing out $1.5 billion in dividends for this year after having made a $1 billion payment in April.

The reduction in the second dividend installment reflects “the more uncertain scenario for mineral commodities prices and the focus on managing the balance sheet," Vale said in a statement.

The Bloomberg World Mining Index of 81 producers has tumbled 70 percent from a 2011 peak as prices of iron ore to industrial metals collapsed amid weaker demand in China, the largest consumer. Glencore Plc, the Swiss producer and trader of raw materials, earlier this month suspended dividend payments as it seeks to reduce its $30 billion in debt.

“This action shows that management is taking real measures to try to mitigate rising leverage and preserve the company’s cash position in a tough macro environment," Banco Santander SA analysts Felipe Reis and Renato Maruichi wrote in a research note. “We expect investors to react positively."

Shares of the company advanced 0.2 percent to close at 13.22 reais in Sao Paulo on Tuesday, the first increase in seven trading days. The stock lost 43 percent in the past 12 months.

Vale’s $1.5 billion dividend payment this year is the Rio de Janeiro-based company’s lowest since 2006 and compares with $4.2 billion disbursed last year. The second payment will be made on Oct. 30 after approval from the board, Vale said in its statement. Holders of voting and non-voting stock will get about 10 cents a share.

The dividend announcement comes just 12 days after the company denied a report by Bank of America Corp. that said it planned to take a more conservative approach to this year’s dividends.

Prices of iron ore, the biggest contributor to Vale’s profit, has averaged less than $60 a ton this year, a far cry from the more than $130 average in the 2011-2014 period. Ore with 62 percent iron content delivered to the Chinese port of Qingdao declined 1.4 percent to $56.05 a dry ton on Tuesday, according to a price index compiled by Metal Bulletin.

Lower metal prices probably will lead Vale to cancel its dividend next year, Credit Suisse Group AG analysts led by Ivano Westin said in a Sept. 16 research note.

“For 2016, under the conditions we expect for commodities prices, we see no room for dividends," the analysts wrote. “Unless we see a major bounce-back in commodity prices or substantial divestments, we keep the view of a zero dividend policy, whereas 2017 could be the year of further dividends payment."

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