Vale expects 2016 will be another challenging year for miners but says it is continuing to restructure to adapt. 

The Brazilian miner, the world’s biggest producer of iron ore, pellets and nickel, said it will be able to make these changes without having to borrow and change its cash flows. 

According to Vale ceo Murilo Ferreira, 2016 "will be another challenging year with a still unfavourable demand and supply outlook, and volatile commodity prices". 

"We will maintain our operational discipline and preserve our balance sheet as we further simplify our corporate structure, increase productivity, cut costs and optimise capex. We’ll also reduce our iron ore cash costs and improve product quality, reduce capex to around $6 billion, and complete divestments and partnerships," he said during the company's investor day in New York. 

The company has already saved more than $5 billion this year compared with 2014, and is looking to make further savings across the board. Potential divestments could generate $4-5.5 billion in 2016. 

The accident at the tailings dam at Samarco's Germano mine in Brazil’s Minas Gerais state is expected to hit the company with losses of about $443 million, although this does not account for the positive impact of higher pellet premiums on Vale’s pellet sales. This $443 million comprises a loss of revenues from the run of the mine of around $543 million and around $55 million in a loss of dividends from Samarco, but is offset by the avoidance of around $155 million in production cash costs while the mine is closed. 

Looking ahead, Ferreira said that Vale expects positive free cash flow by 2017 with a gradual reduction in leverage and an increase in dividend distribution. 
"Capex will reduce and reach around $4-5 billion with the completion of our investment cycle by 2018," he said. 

"Volumes will increase by about 30% in iron ore, 10% in nickel and copper, and also up to 18% in fertiliser products. The iron ore business cash costs and expenses landed in China, adjusted for the sale of pellets, will come in below $25 per tonne in 2018, and the base metals business will continue to increase its cash flow," he added. 

He also noted that Vale’s coal business will benefit from the ramp-up of Moatize in Mozambique, which will reduce costs leading to a substantial improvement in coal margins. The fertiliser business will meanwhile make a bigger contribution through the execution of its commercial strategy, productivity and cost cutting efforts, and the delivery of replacement projects, he said. 

"Free cash flow and dividends will reach higher levels and debt will reduce gradually," Ferreira added. 

This year, Vale expects to produce about 340 million tonnes of iron ore, a level which will stay more or less flat next year before rising steadily through the next several years to as much as 450 million tonnes by 2019. 

About 11-12% of iron ore fines production will go to pellet production, with the miner forecasting 2015 pellets output of 49 million tonnes. This will rise to 55 million tonnes by 2019, it noted. 

• [Editor:Chen Zhen Seng]