Brazilian miner Vale S.A. tapped the U.S. dollar debt market for the first time in almost four years as a commodity-price recovery brings down the Brazilian mining giant’s borrowing costs.
The company’s subsidiary Vale Overseas Limited, issued and priced its senior unsecured $1.25bn bond due 2021. The notes are guaranteed by Vale S.A.
Joint Books are BB Securities, Bank of America, Bradesco BBI, HSBC and Santander.
The company, which last sold U.S. dollar bonds in 2012, would use proceeds from the issuance to develop its iron-ore project, which it plans to commission later in 2016.
Separately, the company plans on divesting assets worth $10bn by 2017 after reporting a fourth-quarter net loss of $8.6bn.
Brazil-based mining company Vale SA stated that it was reviving its Potasio Rio Colorado potash project in Argentina, which it had halted in 2013, to tackle the impact of falling commodity prices and increased fears of the asset’s nationalization.
Vale has scaled down the project and it now aims to produce 1.3m tonnes of potash a year, down from the 4m tonnes it planned earlier. The miner would have to invest $1.5bn up front in the project and wait for about a year to deliver the new technical specifications to the Argentine government.
Prices of potash hover around $240 a tonne, significantly down from more than $800 a tonne in 2008.
Vale had abandoned the project in January 2013 due to a dispute and had already invested $2.2bn into it. Further, the miner was looking for up to $3bn in tax breaks from the Argentine government to offset soaring costs, but was denied.
Mining giant Anglo American plc stated that it had agreed to sell its niobium and phosphates businesses in Brazil to China Molybdenum Co. Ltd for $1.5bn.
Proceeds from the sale would be utilized towards reducing its debt, which Anglo plans to reduce to c.$10bn by the end of 2016 from its FY 2015 debt of $12.9bn. Previously, Anglo had conducted a $1.3bn debt-repurchase offering as part of its turnaround and debt reduction plan.
The company plans of a further $3-4bn of asset sales in 2016. Anglo American plans to focus its mining operations on diamonds, copper and platinum.
Moody’s downgraded Brazil-based mining firm Samarco Mineracao’s CFR to Caa2 from Caa1, with a negative outlook on the company. Ratings on the following debt instruments were also downgraded (outlook: negative):
- $1bn Senior Unsecured Notes due 2022: from Caa1 to Caa2
- $700m Senior Unsecured Notes due 2022: from Caa1 to Caa2
- $500m Senior Unsecured Notes due 2022: from Caa1 to Caa2
Moody’s attributed the downgrade to the continued uncertainty about Samarco’s ability to resume mining operations in Brazil, concerns over liquidity pressures and risk arising from compensation payments the company has to make in light of its dam burst accident.
Samarco’s mining operations have been suspended since November 2015 when a dam rupture at one of its mines caused a massive flood in the Minas Gerais district of Brazil.
In the absence of mining operations, revenue generation has been significantly affected and the company may not have sufficient funds to meet its financial obligations and operating expenses in 2016.
Further, with compensation claims arising from the incident, Samarco could face significant cash outflows in 2016, further pressuring the company’s liquidity.
During March 2016, the miner and its shareholders (BHP Billiton and Vale S.A.) signed a compensation agreement with Brazilian federal authorities which outlined the financial terms Samarco would have to comply with until 2030 in relation to the accident.
As per the agreement, Samarco would have to make payments amounting to a total of BRL 4.4bn from 2016 to 2018, and further annual payments between BRL 0.8 – 1.6bn from 2019 to 2021. Payments to be made from 2022 until 2030 would be defined by the authorities based on the targets set by the agreement.
Source: Moodys’ Rating Report (16 March 2016)
Mining firm Anglo American’s subsidiary Anglo American Capital plc plans to re-purchase upto $1.3bn of its bonds from investors as part of its turnaround plan aimed at reducing debt and divesting certain assets.
The company published a tender offer on 18 February 2016 to purchase debt which ends on 16 March 2016.
The plan to puchase debt comes on the news of Moodys’ downgrading the company’s credit ratings to Ba3 from Baa3 on 15 February 2016, ahead of its FY 2015 results announced a day later. S&P also downgraded the company’s credit rating to BB from BBB-.
Key takeaways from the FY 2015 earnings release:
- Revenue of $23bn vs. $30.9bn a year ago
- Net loss before tax of $5.5bn vs. loss of $259m a year ago
- EBIT at $2.2bn vs. $4.9bn a year ago
- EBITDA at $4.8bn vs. $7.8bn a year ago
Targets for 2016:
- $3-4bn of asset disposals targeted
- pro-forma net debt to decline below $10bn by 2016 and to touch $6bn in the medium-term
- Net Leverage to be less than 2.5x in the medium-term
- Suspension of dividend payments
- Capex for 2016 of less than $3bn
Bonds to be purchased include EUR, GBP and USD -denominated bonds with the following maturities:
- 4.375% bonds due December 2016
- 1.75% bonds due November 2017
- 1.75% bonds due May 2018
- 6.875% bonds due April 2018
- 2.5% bonds due September 2018
- 2.625% USD bonds due 2017
Sources: Company Press Releases, PR Newswire, Bloomberg & FT