S&P Downgrades Brazil Miner Vale--Update

By Paul Kiernan 
 

RIO DE JANEIRO--Ratings firm Standard & Poor's downgraded Brazilian mining giant Vale SA to one level above junk, saying low commodities prices will continue to pressure the company's balance sheet and make asset sales difficult.

S&P downgraded Vale debt to BBB-, the lowest level in the investment-grade category, and maintained a negative outlook on the company. The move came after S&P reduced its price assumptions for iron ore and nickel, of which Vale is the world's largest producer, as well as copper.

"The low iron-ore prices are pushing Vale to divest non-core assets at a faster speed to finance the cash-flow deficit stemming from its significant capital expansion plan," S&P said. If Vale struggles to complete these sales, or if iron-ore prices fall below $40 per ton, its debt levels would likely rise, forcing an additional downgrade.

A Vale spokeswoman said she could not immediately comment on the S&P downgrade.

Not included in S&P's base-case scenario were any potential outlays Vale may face from fines and lawsuits related to a massive dam failure at its Samarco Mineração SA joint venture. But S&P noted that if a judge rules in favor of the Brazilian government's roughly $5 billion civil lawsuit against Samarco and its parent companies, it would raise Vale's "leverage metrics" by about 0.5 times.

"We would proportionally consolidate half of that compensation into the company's numbers," S&P said. The company added that it assumes Samarco will resume operations at 50% capacity in 2017, something that remains far from certain as authorities continue to assess the damage from the accident.

The downgrade brings S&P's rating of Vale's debt in line with that of Moody's Investors Service, which put its rating on negative review earlier this month.

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January 29, 2016 12:57 ET (17:57 GMT)

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