Vale Dangles More Dividends and Buyback With Cash ‘Way Too High’

(Bloomberg) -- Vale SA, once the most generous payer of dividends among major miners, is looking to regain that status as surging prices of iron ore, nickel and copper flood its coffers.

The Rio de Janeiro-based company announced on Thursday a bigger-than expected payment from profit generated in the second half of last year and pledged Friday to return any excess cash to shareholders this year. Chief Executive Officer Eduardo Bartolomeo also said a share buyback is on the table, although no decision has been made on that yet.

It’s a sharp turnaround from the last couple of years after a tailings dam disaster sent Vale into crisis mode, cutting dividends and scaling back operations as it focused on repairing the damage and shoring up safety. Now, with a dam-collapse settlement signed with authorities and prices of its metals rallying to multiyear highs, Vale is ready to reward investors who suffered through the lean years.

The surge in prices has turned miners into cash machines once again, with Vale’s iron ore business generating its second-highest earnings ever and the company squarely focused on growing its existing assets rather than splashing out on deals as it did in previous booms.

“So the natural way for money to flow is to the shareholders, as long as we can keep our business growing and safe,” Bartolomeo told analysts on Friday.

Cash Surplus

Chief Financial Officer Luciano Siani Pires said on the same call that the company’s cash position “is way too high” and “we are looking into a number of alternatives.” BMO Capital Markets estimates Vale will generate free cash flow of $36 billion from 2021 to 2023, 36% of its current market value.

Doling out more money to shareholders or buying back shares would also help Vale narrow its valuation gap with rivals BHP Group and Rio Tinto Group, whose mines are closer to China and headquarters are in developed nations.

Vale’s shares trade at a ratio to estimated profit that is about half those of BHP and Rio Tinto. It’s a discount that “bothers us,” Pires said.

Vale’s board approved a March dividend payment of 3.427 reais a share, beating a projection of 2.697 reais by Bloomberg’s Dividend Forecasting team and up from 1.41 reais in September. The stock has doubled in value in the past year to about 95 reais ($17).

The CFO said Vale is already back in front of some competitors on dividend yield. “The expectation is that we can, going forward, lift these values,” he said.

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