Standard & Poor's forecasts the world's largest iron ore miner, Vale, will cut its capital spending in the face of lower iron ore prices, but will maintain strong cash flow.

In an evaluation of Brazilian iron ore über miner Vale published on Thursday, Standard & Poor's said, that in the next 18 to 24 months, "we still believe that market fundamentals for iron ore remain relatively positive and will allow Vale to post strong cash flow generation."

Noting that iron ore prices declined as much as 30% since July to below USD 90 per tonne, before recovering to USD 100 to USD 110 per ton, S&P Credit Analysts Rafaela Vitoria and Milena Zaniboni revised their EBITDA expectation for Vale from USD 25 billion to USD 29 billion previously to USD 22 billion to USD 23 billion.

They said "Our reduced EBITDA expectation is mostly a result of weaker average prices for iron ore, 20% lower than we previously expected, since volume should remain constant at 300 million tonnes of iron ore and pellets sold in the year.”

They said “Assuming Vale's average sales price for iron ore of USD 100 per tonne this year and USD 90 per tonne next year and 100% of its capital expenditures, including all projects approved and undergoing, we expect Vale to maintain comfortable credit metrics in the rating category.”

However, the analysts said they believe Vale will adjust its USD 21.4 billion capital expenditure plan for this year including USD 12.9 billion for expansion projects, USD 2.4 billion for R&D and USD 6.1 billion for existing operations. They said “Spending on several news mines, including Serra Sul, Serra Leste, Simandou, and Moatize, was 40% below projected levels as of June 30, 2012. In addition, Vale continued to divest non-core assets: in 2012, it has announced the sale of vessels and manganese ferroalloy operations in Europe, thermal coal assets in Columbia, and the kaolin business in Brazil."

Source - Mineweb.com

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