Vale SA (ARD) (NYSE:VALE) is looking for new cash to address its cash flow shortage. The company is targeting disposal of some of its assets to generate cash to supports its other more promising operations, but it faces several challenges. Sources have cited that the company could first offload its ships and rail assets before it turns to selling its mining assets. However, the dilemma is that the company may not obtain enough cash from the sale of ships and rail logistic assets, yet the market condition is not conducive enough to for the sale of mining assets.
A few months ago, Vale SA (ARD) (NYSE:VALE) told investors that it was exploring nine options to raise funds. The company is looking for fresh cash to invest in a giant iron ore mine in the Amazon. According to the management, the Amazon iron ore project will be vital in helping the company to deal with a slump in iron ore prices and challenge from Australian rivals.
Vale SA (ARD) (NYSE:VALE) is facing mounting competition in China. Demand in the market has not only slowed down, but Australian suppliers are also eating into its market share in the country, which is why the 90 million-tonne-per-year S11D project in the Amazon is considered a great bet.
According to Vale’s CEO, Murilo Ferreira, they are not going to delay the S11D project because of its potential to save them money amid price rout in the iron ore market.
Selling infrastructure and logistic assets
Vale SA (ARD) (NYSE:VALE) obviously has a sound strategy and the management is clear about where they want to take the company to create more value for shareholders. The challenge is that ships and rail assets are the properties that can quickly attract buyers in the current situation. However, money from the sale of the assets would probably not be enough for the company to do what it wants. The company could offload its Valemaxes carriers and sell its stake in the rail freight company MRS Logística SA, sources with insider knowledge of the matter revealed.
Unfair pricing of mining assets
Although mining assets could sell more easily than ships and rail, the market is currently valuing mining assets poorly, which means that the company may not be able to obtain the value it wants from mining deals.
Vale SA (ARD) (NYSE:VALE) is looking to plug a $1.4 billion cash flow hole in its budget this year.