Credit rating agency Standard & Poor’s (S&P) upgraded Vale’s outlook on its global-scale rating to positive from stable on favorable debt-reduction prospects.
Additionally, the credit agency affirmed Vale’s global-scale ratings to BBB- and Vale’s national-scale rating to brAAA. The company’s national-scale rating outlook remained stable.
“Strong iron ore prices for the past six months will likely enable Brazil-based miner Vale S.A. to reduce its debt by $8 billion-$10 billion by the end of 2017, reducing its vulnerability to price downturns,” S&P said, while explaining the improved outlook.
S&P said the company’s “credit quality” is “improving rapidly due mainly to supportive iron ore prices and management actions to contain the company's leverage, such as non-core asset divestitures and operating cost reductions.”
As iron ore prices should continue to “dip slightly this year,” S&P noted lower debt position at Vale could “pave the way to an upgrade, because it would reduce vulnerability to price downturns, compensating for the inherent volatility of Vale's cash flows.”
“In the longer term, as Vale's operating cash flows would grow stronger due to increasing volumes from Carajás pit and lower capital expenditures, we expect annual discretionary cash flows of at least $4 billion, which the company would use to reduce its debt further,” the agency said.