Fitch Ratings has affirmed the foreign- and local-currency Issuer Default Ratings (IDRs) of
Fitch has also affirmed the senior unsecured debt ratings of
The rating actions follow Vale's efforts to mitigate the risk of dam failures and the impacts they might have upon the environment and surrounding communities. These ratings are underpinned by Vale's low leverage and strong FCF. The company can withstand downturns in iron ore prices and unexpected legal liabilities related to the Brumadinho dam failure.
Vale Overseas and Vale Canada are wholly owned subsidiaries of Vale. Due to the strong legal, operational and strategic linkage between these entities and Vale, their bonds have been directly linked to Vale's rating through Fitch's Parent and Subsidiary Rating Criteria.
Key Rating Drivers
Solid Business Profile: Vale is a leading producer of seaborne iron ore with one of the lowest industry cost positions. Its market position is viewed to be sustainable due to its abundant reserves and the competitiveness of its Northern System. Vale's business strength as a low-cost producer is enhanced by the high grade of its iron ore, which allows the company to receive market premiums; these factors largely offset the transportation advantage Australian producers enjoy in delivering ore to
Strong Capital Structure: Vale's strong business position is matched by an equally strong capital structure. The company had
For 2021, Fitch projects that Vale will end the year with a close to null net leverage ratio. Through dividends, share repurchases and payments of interest on capital, Fitch expects Vale to increase its net debt to around
Robust FCF: The coronavirus pandemic has had a marginal impact in Vale's results and its FCF will remain high. The easing of supply disruptions stemming from weather events and Vale's dam accident and the onset of demand concerns related to the Chinese property market weigh down on still historically high iron ore prices. FCF is expected to remain high in 2022 at around
Brumadinho Reparation Plan Settled: In
The settlement plan establishes guidelines and governance for socio-environmental reparations allowing Vale to continue dam decommissioning, and donations, while focusing on improving output toward its medium-term resumption target of
Piercing Country Ceiling: Vale's ratings are not constrained by
Derivation Summary
Vale is the leading low-cost iron ore producer globally, which positions the company well with its peers. Vale has similar business risk to
All three companies benefit from large-scale operations and low-cost positions. Rio Tinto and BHP's iron ore businesses are located closer to
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Issuer
Benchmark iron ore prices average
Iron ore fines and pellets volumes of 315 million tons in 2021, 315 million tons in 2022 and 360 million tons in 2023;
Copper prices of
Capex of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Additional progress in dam decommissioning;
Increased output of iron ore from dry processing;
Consistent net debt/EBITDA ratio below 1.0x;
Improvement in Brazilian sovereign rating.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Sustained reduction in the ratio of Canadian generated EBITDA to annual hard currency debt service to below 1.0x;
Net debt/EBITDA above 2.0x on a sustained basis;
Multi-notch downgrade of the Brazilian government's rating.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Ample Liquidity: Vale ended
Issuer Profile
Vale is the world's largest producer of iron ore and iron ore pellets and one of the largest producers of nickel. The company is present in approximately 30 countries. It operates railroads, maritime freight assets, floating transfer stations and distribution centers in
Summary of Financial Adjustments
The financials were adjusted in accordance with Fitch's treatment of Operating Leases detailed in Fitch's Corporate Criteria. An adjustment was made to debt for participative stockholders' debentures and related party debt not classified as debt. Brumadinho provisions (non-cash) were added back to EBITDA.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The principal sources of information used in the analysis are described in the Applicable Criteria.
Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary.
ESG Considerations
Fitch has changed the ESG Relevance Score for Management Strategy (GEX) to 3 from 4, given the improvement in the execution of management's strategy for dam and employee safety. Important steps include the creation of a
Fitch has changed the ESG Relevance Score for Group Structure (GST) to 3 from 4. Vale's ongoing strategy to divest from non-core assets has streamlined its legal structure between subsidiaries while maintaining or improving reporting standards.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
Entity / Debt
Rating
Prior
senior unsecured
LT
BBB
Affirmed
BBB
LT IDR
BBB
Affirmed
BBB
LC LT IDR
BBB
Affirmed
BBB
Natl LT
Affirmed
senior unsecured
LT
BBB
Affirmed
BBB
senior unsecured
Natl LT
Affirmed
senior unsecured
LT
BBB
Affirmed
BBB
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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