High cost of borrowing will dent M&A - Vale

15 December 2008 @ 03:36 pm EDT

The high cost of borrowing is likely to hamper mining firms' ability to pursue takeovers and cut a strong appetite for acquisitions in the sector, Brazilian mining giant Vale (VALE5.SA)(RIO.N) said on Monday.

"Our sector will see less wonderful days for mergers and acquisitions," said Vale Financial Director Fabio Barbosa, addressing participants at an investor seminar in Sao Paulo.

However, he said Vale had $15.3 billion dollars in cash, a long-term credit line of $10 billion and another for $1.3 billion which he said put the firm in a position to consider worthwhile acquisition opportunities.

Some banks had also approached Vale about borrowing some of its cash, offering returns of 106 percent to 107 percent of Brazil's inter-bank rate, slightly higher than recent rates on offer.

Barbosa said Vale was still confident of economic growth in China of up to 8.5 percent in 2009 and that fundamentals for the iron ore market were still favorable.

But in adjusting to a sudden fall in global demand for metals, Vale has shifted mining operations down a gear at projects in Brazil, reducing or suspending production at some and laying off 1,300 workers globally.

Vale, the world's top iron ore producer, gave up on talks to buy Swiss rival Xstrata (XTA.L) in April as its fallen share price would make it difficult to persuade Xstrata shareholders to accept a bid. Vale said at the time that if circumstances changed, it might try again. (Reporting by Aluisio Alves; Translated by Peter Murphy; Editing by Christian Wiessner)

High cost of borrowing will dent M&A - Vale

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