Fitch Ratings: Vale's Brucutu Mine Stoppage Considered In Scenario Analysis
05 FEB 2019 05:38 PM ET
Fitch Ratings-Chicago-05 February 2019: Fitch Ratings analyzed three negative scenarios for Vale during a recent webcast. In the first scenario, Vale stops production at its operations located near its inactive tailings dams (about 40 million metric tons). In the second stress scenario, volumes are reduced by 100 million metric tons per year to replicate a complete stoppage of the Southern System. The third scenario is the most aggressive. It contemplates a scenario in which Vale stops producing iron ore at sites that use wet processing.
The stoppage requested by Brazilian authorities at the company's Brucutu mine (30 million metric tons) in addition to the 40 million metric tons of production that Vale will eliminate over the next three years in locations where it has upstream tailings dams, most closely replicates Fitch's second scenario analysis. Under this scenario, Vale's EBITDA generation was projected to be USD16.3 billion in 2019 and USD17.1 billion in 2020, with net debt/EBITDA ratios projected to remain below 1.0x in 2020. Fitch used an average iron price of $80/ton in this scenario that is more conservative than the current price of $87/ton.
Vale announced it would undertake all legal measures in order to overturn the decision as the dams affected by the order have the correct licenses and documentation attesting to their stability and there is no technical rationale for their closure.
Below is a link to a replay of Fitch's webinar on Vale's tailings dam accident that highlights various scenarios and the impact to the company's capital structure.