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 All Series of Debentures & Notes for Vale Canada Limited at BBB (low). All trends are Stable. The confirmations are primarily a recognition that DBRS Morningstar limits the difference between the Federative Republic of Brazil’s (Brazil) BB (low) Long-Term Foreign Currency–Issuer Rating and Brazilian-domiciled Vale’s Issuer Rating at three notches. Factors that support the rating include (1) Vale’s ongoing debt reduction initiatives, including the favourable debt maturity schedule with no maturities representing more than 10% of total gross debt until 2027; and (2) Vale’s financial risk profile continuing to benefit from robust iron ore prices relative to historical levels. In addition, the ratings are supported by Vale’s business risk profile, including the Company’s long-life iron ore reserves, low operating cost structure, significant size, and strongly integrated supply chain, particularly with China.
Vale continues to recover from the Brumadinho event. Production has been gradually increasing with management guidance of between 310 million tonnes and 320 million tonnes of iron ore in 2023. Management expects production capacity to return to between 340 million tonnes to 360 million tonnes-per-year level in the medium term. DBRS Morningstar notes that Vale reported a net decline of only approximately 5% in its proven and probable iron ore reserves at the end of 2022, with the decrease due to mine depletion, mine design reviews, boundary constraints, and temporary constraints on waste and tailings disposal across the Southeastern, Northern, and Southern Systems. At the end of 2022, Vale reported approximately 11.8 billion tonnes of iron ore reserves and had approximately 22.1 billion tonnes of iron ore resources that could potentially be upgraded to reserves in a cost-effective manner.
Overall, Vale’s key credit metrics are 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 DBRS Morningstar assesses Brazil’s credit outlook weakening and a downgrade to the B rating category or lower results, a negative rating action could follow for Vale, tipping the Company into the non-investment-grade category irrespective of its strong credit metrics.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).
All figures are in U.S. dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodologies:
-- Global Methodology for Rating Companies in the Mining Industry (August 30, 2022; https://www.dbrsmorningstar.com/research/402159).
-- DBRS Morningstar Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694).
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions
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The rated entity or its related entities did participate in the rating process for this rating action.
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