Announcement: Moody's says Vale's $7 billion settlement with Brazilian authorities on Brumadinho is credit positiveGlobal Credit Research - 05 Feb 2021New York, February 05, 2021 -- Moody's Investors Service noted that Vale S.A. (Baa3 stable) announcement that it entered into a judicial settlement with Brazilian authorities for the reparation of environmental and social damage resulting from the tailings dam accident in Brumadinho in January 2019 is credit positive, as it largely resolves the uncertainty regarding the collective damage. Vale has very low leverage and strong liquidity with which to make the remaining cash payments without impacting key credit metrics. Ratings are not impacted because Vale needs to show a track record of strong risk controls and environmental governance.The agreement has a total amount of BRL 37.7 billion ($7 billion) and comprises projects for the affected communities, including a program of income transfer to the population, and resources to the state of Minas Gerais to certain programs. The settlement also addresses the reparation plan for environmental damages and water clean-up in the affected area.Part of the amount settled includes initiatives already implemented and provisioned by Vale. The company already disbursed about $1.5 billion for the socioeconomic and environmental recovery in the affected areas, and, based on the amount provisioned, about $1.6 billion remains outstanding as of September 30, 2020.As a consequence, out of the $7 billion judicial settlement, Vale will pay an additional amount of about $3.7 billion - BRL 5.4 billion ($1 billion) upon the release of judicial deposits and BRL 14.4 billion ($2.7 billion) will be spent in the coming years. We expect that the major part of the disbursements will happen in the next 2-3 years, as the company continues with its focus on immediately repair the damage and compensate the parties involved.Although the agreement does not include individual claims, we estimate those to have a lower impact on Vale's disbursements, as the company has already signed a significant number of individual agreements with over 9,000 people, with provisions for agreements and donations in the amount of $1.5 billion as of September 30, 2020. We do not expect any material disbursements related to individual agreement in addition to the amounts already provisioned.Despite the financial implications of the tailings dam accident, Vale managed to maintain strong liquidity and access to banks and debt markets, with limited volatility in credit metrics. As Vale has strong liquidity ($8.8 billion in cash and $5 billion under committed credit facilities at the end of September 2020) and continues to generate positive free cash flows ($2.9 billion in the twelve months ended September 2020, after $3.3 billion in dividends), we do not expect a material impact in the company's liquidity coming from cash payments directly related to Brumadinho.Headquartered in Rio de Janeiro, Brazil, Vale is one of the world's largest mining enterprises. The company has substantive positions in iron ore and nickel, relevant operations in copper and coal, and supplemental positions in energy and steel production. The company's principal mining operations are in Brazil, Canada, Indonesia, New Caledonia and Mozambique. In the 12 months that ended September 2020, Vale reported net operating revenue of $35.2 billion.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Barbara Mattos, CFA Senior Vice President Corporate Finance Group Moody's America Latina Ltda. Avenida Nacoes Unidas, 12.551 16th Floor, Room 1601 Sao Paulo, SP 04578-903 Brazil JOURNALISTS: 0 800 891 2518 Client Service: 1 212 553 1653 Marianna Waltz, CFA MD - Corporate Finance Corporate Finance Group JOURNALISTS: 0 800 891 2518 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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