DBRS Morningstar Confirms Vale S.A.’s Ratings at BBB (low), Stable TrendsNatural Resources
DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of Vale S.A. (Vale or the Company) at BBB (low). DBRS Morningstar also confirmed the Senior Unsecured Debt rating of Vale Overseas Limited and the All Series Debentures & Notes rating of Vale Canada Limited at BBB (low). All trends are Stable. The confirmations result from (1) Vale’s financial risk profile benefiting from record high iron ore prices and (2) Vale’s favourable debt maturity schedule with no maturities representing more than 10% of total gross debt until 2024. The Stable trends are a result of Vale’s business risk profile remaining strong for the rating based on long-life reserves, low operating cost structure, and significant size with strong logistics supply chains, especially with China. DBRS Morningstar does not consider a more than three-notch differential between Brazil’s BB (low) Long-Term Foreign Currency rating and Vale’s Issuer Rating likely.
Vale continues to recover from the Brumadinho event and has been gradually increasing production with management guidance for between 315 million tonnes and 335 million tonnes in 2021, with the expectation of production capacity returning to the 400 million tonnes-per-year level by the end of 2022. DBRS Morningstar notes that Vale reported a net decline of approximately 1.7 billion tonnes of its proven and probable iron ore reserves at the end of 2020, with the decrease including mined depletion of approximately 0.5 billion tonnes. The remainder of the decrease resulted from changes in strategic project reviews, processing factors, and in-pit tailings disposal but also included the application of new environmental regulations related to caves. While DBRS Morningstar does not believe the impact on the Company’s credit profile is material, the new regulations highlight the risks of stricter environmental controls for resource development and extraction.
On July 7, 2020, Vale issued $1.5 billion of guaranteed notes due July 8, 2030, with the proceeds used for general corporate purposes. Following this, on September 28, 2020, the Company announced that it had repaid its $5 billion revolving lines of credit that were drawn down on March 24, 2020, due to the Coronavirus Disease (COVID-19) pandemic. Additionally, on March 29, 2021, Vale redeemed EUR 750 million in 3.75% bonds maturing in January 2023, reducing total gross debt by approximately $1.2 billion. The modestly lower debt levels combined with Vale’s robust cash flow and EBITDA have resulted in all of the key credit metrics, with the exception of debt-to-capital, improving to the AA rating category in the last 12 months ending March 31, 2021.
As a result, Vale’s key credit metrics remain supportive of a higher rating within the investment-grade BBB category. DBRS Morningstar’s sovereign rating for Brazil is BB (low) with a Stable trend, which does not preclude Vale from having an investment-grade rating; however, if Brazil’s credit outlook does not remain stable going forward and a further downgrade to the B rating category ensues, a negative rating action placing the Company in the non-investment-grade BB category could follow, irrespective of Vale's current credit strength.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in U.S. dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Mining Industry (August 17, 2020; https://www.dbrsmorningstar.com/research/365807) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021; https://www.dbrsmorningstar.com/research/379424), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar did have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
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