The new head of Brazil's biggest private company Vale has said the miner must halve net debt to less than $10bn if it wants to become a "results-orientated" company.
Neil Hume, Commodities and Mining Editor
In an interview with the Financial Times, Fabio Schvartsman said reducing debt was his number one priority and that there was a better chance of restarting the Samarco iron ore mine — the site of Brazil's biggest environmental catastrophe and which it owns 50:50 with BHP Billiton — if Vale were able to take control.
"If we are at the $10bn level, it doesn't matter what happens with commodity prices," said Mr Schvartsman. "Vale will be in a very sound position to do everything that is necessary." The company's current market capitalisation is $53bn.
Vale is the world's top producer of steelmaking ingredient iron ore.
Along with its peers, it spent billions of dollars when commodity prices were high on ambitious projects and deals in an attempt to take advantage of China's seemingly insatiable appetite for raw materials. As a result, the company's debt ballooned to dangerously high levels, reaching almost $25bn.
Mr Schvartsman said Vale's net debt, currently $21.1bn, could drop below $10bn next year if commodity prices hold and the company is able to keep costs and spending under control.
"Given where prices are, it's feasible," he said.
Mr Schvartsman, one of Brazil's most experienced executives, joined Vale in May from Klabin, a pulp and paper company that he transformed. His appointment coincided with moves to unravel a complex shareholder agreement that allowed the government — through state-owned pension funds — to effectively control the company.
Vale was privatised 20 years ago but for most of the time it has behaved like a quasi-state enterprise.
Since taking charge, Mr Schvartsman has changed Vale's capital allocation policy and stopped several projects, such as the expansion of a nickel mine in Canada, because they were unlikely to generate good returns.
"My entire career was made in the private sector, so it's very easy for me to understand how far Vale is from a normal company," said Mr Schvartsman. "It has the processes of a state-owned company with silos everywhere, its lacks meritocracy. It is not a result-orientated company."
Mr Schvartsman also said he would have no hesitation in closing Vale's lossmaking nickel project on the South Pacific island of New Caledonia if it could not find a partner willing to invest up to $1bn to help fund new storage for tailings. Vale has been trying to attract interest in the project from Chinese battery makers.
Mr Schvartsman said the Samarco mine stood a better chance of restarting production with Vale in control. Samarco has been out of action since a dam burst in November 2015 killing as many as 19 people. Operations cannot resume until it has been relicensed by state and federal authorities.
"We have a lot of assets in Vale that can be used to help Samarco restart," said Mr Schvartsman, referring to nearby dams that could hold tailings. "We have a better chance of restarting if it becomes our own."
Mr Schvartsman, who is 63, said Vale would be his last executive job and he did not expect to spend more than two to three years at the helm. "There is a big opportunity to improve processes and organisation and this can become my legacy if I can do it properly," he said.
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