Vale has too few projects lined up to significantly reduce iron-ore reliance – report
Brazilian mining company Vale remains heavily reliant on iron-ore as its main source of revenue, despite a stated objective of reducing the percentage of earnings derived from the ferrous metal.
Vale is aiming for ferrous minerals to contribute about 70% of its earnings, rather than the 90% of adjusted earnings before interest tax, depreciation and amortisation that it contributed in the third quarter of 2018.
However, Fitch Solutions is of the opinion that Vale will struggle to diversify its revenue source away from iron-ore, citing an increase in production from the ramp-up of the SD11 mine, which will produce 90-million tonnes a year by 2020, and a lack of new nonferrous metals to counter the increased iron-ore output.
Vale’s nonferrous projects include the Belvedere coking coal project and the 50%-owned Eagle Downs coking coal project, both in Australia. It also owns the Pantera copper/gold project, in Brazil, in which Avanco has an option to acquire 100%.
“Vale has (too) few new projects in nonferrous metals currently in the pipeline to significantly reduce its revenue source away from iron-ore over the coming years,” Fitch says in a new report.
It also notes that Vale CEO Fabio Schvartzman has ruled out any major acquisitions in the short term and has indicated that the major will only invest in new nickel mines if the global price of the metal improves.
Vale, thus, remains heavily exposed to a poor iron-ore price outlook, with Fitch Solutions pegging iron-ore at $55/t in 2018 and $48/t in 2019.
The SD11 mine, with reserves of four-billion tonnes, will ensure that Vale remains its market share as the lowest-cost iron-ore producer. The mine has a high ferrous content of about 66%, which will help the company progress with plans to increase shipping of high-quality iron-ore to China.
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