Date: Oct 12, 2018

The chief executive of Vale, the world’s biggest producer of steelmaking ingredient iron ore, has called an end to its deleveraging programme and said excess cash should be used to repurchase shares.

In an interview with the Financial Times, Fabio Schvartsman, who took the helm of the Brazilian miner in May 2017, said his goal of more than halving net debt to $10bn had been achieved and he would now focus on increasing returns to shareholders.

“There is nothing more than can or should be done,” he said during a visit to London, adding share buybacks were the best investment the company could make at the current time.

“Our stock is still very under appreciated. There is still a lot to be recognised by the market,” he said.

Vale has been one of the big beneficiaries of China’s efforts to reduce excess capacity in its sprawling steel industry and clean up its environment. This has boosted demand for the company’s high grade, low impurity iron ore, which emits less pollution and helps steels mill improve the productivity of their blast furnaces.

It has also lifted results and helped Vale reduce debts built up during a spending spree in the commodities boom of the 2000s. In the three months to June, Vale reported earnings before tax, depreciation and amortisation of $3.9bn, up from $2.7bn a year earlier, and reduced net debt by $3.4bn.
Vale’s so-called Northern system, including its new S11D mine, holds 6.8bn tonnes of high-grade iron ore, a resource unrivalled outside of an undeveloped deposit in Guinea.

“This is a very good moment for our iron ore business. The best we have had for many, many years,” said Mr Schvartsman, who has slashed spending since he took the job. “Vale has never been in a situation where it has what the market needs and its competition has exactly the opposite problem.”

Investors have started to take notice. Aided by a new dividend policy and a $1bn share buyback announced in July, shares in Vale have risen 40 per cent this year, significantly outperforming all of its peers. The company is valued at $78bn, just $6bn less than Rio Tinto, the world’s second-biggest producer of iron ore.

“Peak steel in China is drawing nearer and seaborne [export] trade in iron ore is approaching stagnation, but good times remain ahead for low-cost suppliers of premium iron ore products,” said Richard Wilson, chairman of metals at Wood Mackenzie, a consultancy.

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