Vale SA (NYSE:VALE) is in the vale of prosperity
Fitch has now affirmed the BBB+ FC IDRs of Vale Canada Limited and Vale Overseas Limited. They have also affirmed the BBB+ foreign currency ratings for the senior unsecured-debt that was issued by these companies. The ratings of Vale Overseas Limited and Vale Canada Limited have been linked to Vale SA (NYSE:VALE) ratings via Fitch’s ‘Parent Subsidiary-Rating Linkage’ criteria. Vale SA (NYSE:VALE) is the Cayman Islands-based Vale Overseas Limited’s debt guarantor. Vale Canada Ltd is an operating-company with operations in Indonesia and Canada and its debt is not guaranteed by VALE
Basis of the rating
VALE’s ratings are backed by the company’s solid business position. It is the leading iron ore producer in the world. In 2012, VALE had approximately a 24% seaborne market share. Its cost position takes its position one notch higher. This is estimated to be positioned in the lowest quartile and its low-cost position allows it to continue generating positive cash-flow from operations even during industry downturns.
What is fortifying this position are the 2 expansion projects situated in the Carajas region. These will contribute to increasing its annual output of iron ore from 303M tons in 2012 to an estimated 430M tons by 2017. Carajas Additional 40 is scheduled to reach completion in the latter half of 2013. It will increase VALE’s annual iron ore output by 40M tons. S11D, the second project, will increase its output by an added 90M tons by 2017. The estimated S11D production costs will be amongst the lowest across the globe.
More good news
Yesterday the company also announced that it has now entered into a contract for a 5-year revolving credit-line facility of US$ 2B in a best-effort transaction.
The company and few of its 100%-owned subsidiaries will be able to draw funds over the 5-year tenor of the facility. With this new facility the total amount of revolving-credit lines now is US$ 5B as they already have a US$ 3B line, which will be maturing in 2016. The revolving-credit lines operate as a short-term liquidity buffer that enhances the company’s liquidity and permits more-efficient cash management, which is consistent with its strategic focus on the cost of capital reduction.