Vale upgraded to ’BBB+’ by Fitch on diversification and risk reduction

Investing.com -- Fitch Ratings has upgraded Vale S.A.’s Long-Term Foreign and Local Currency Issuer Default Ratings to ’BBB+’ from ’BBB’ with a Stable outlook, the agency announced Thursday.

The upgrade reflects Vale’s broader diversification into higher value-added products, greater operational flexibility, and rising scale. Fitch also cited the company’s environmental risk mitigation efforts, which have reduced litigation uncertainty.

Vale’s cross-border unsecured bonds were upgraded to ’BBB+’ from ’BBB’, while its Long-Term National Scale rating and local debentures were affirmed at ’AAA(bra)’. The senior unsecured debt ratings of Vale Overseas Limited were also upgraded to ’BBB+’.

As the world’s largest iron ore pellets producer and one of the three largest seaborne iron ore miners, Vale maintains a dominant market position through its Northern System operations in Para, northern Brazil, which represent about 11% of the global seaborne market. Iron ore contributes approximately 90% of Vale’s EBITDA, with copper accounting for 10% and nickel for 1%.

The company’s first-quartile cost position in its largest iron ore systems is supported by high-grade iron ore and integrated infrastructure. Vale has maintained its cash cost guidance at $20.5-$22/t and targets costs below $20/t by 2026. Through efficiency programs including autonomous fleet adoption, the company aims to reach $18-$19.5/t by 2030.

Fitch expects Vale’s EBITDA to be $14.2 billion in 2025, $13.4 billion in 2026, and $13.3 billion in 2027. The company’s net debt is projected to average $12 billion between 2025 and 2027, with net leverage around 0.9x during this period.

Despite current price resilience, Fitch anticipates challenging conditions for iron ore prices, assuming $85/t in 2026, $75/t in 2027, and $70/t in 2028. Expected increases in global supply from Simandou and structural weaknesses in Chinese growth remain concerns.

Vale has made significant progress in its environmental risk reduction strategy, having de-characterized 60% of its 30 upstream dams, with four more scheduled by 2027 and eight thereafter. The company now has no dams at Emergency Level 3, compared to four in 2020.

The Samarco Definitive Compensation Program and Brumadinho Integral Reparations Agreement have increased certainty over remediation payments and decreased related litigation risks. Fitch’s ratings case incorporates Samarco remediation disbursements of $900 million in 2026 and $600 million in 2027, along with Brumadinho payments of $700 million in 2026 and $500 million in 2027.

Fitch noted that a medium-term upgrade is unlikely considering Vale’s limited diversification and geographical concentration compared to peers. However, factors that could lead to a positive rating action include higher cash flow from sustainable diversification, decommissioning more than 25 upstream dams, maintaining positive free cash flow regardless of capital expenditure plans, and consistent net debt/EBITDA below 0.5x.

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