Vale Considers Ending Port Contract with Navios

Port facilities at Nueva Palmira (file image, video frame)

By MarEx 2016-04-28 12:29:26

Navios Logistics has lost a 20-year contract with Brazilian mining giant Vale for storage and transshipment of iron ore. 

In its 2015 annual report, released April 25, parent company Navios Maritime Holdings said that it had received notice that "Vale International will not be performing the service contract . . .  for the iron ore port facility currently under construction in Nueva Palmira, Uruguay.” Navios said that “Vale International’s position is without merit” and that the contract remains in force; if Vale cannot be convinced to reconsider, “Navios Logistics will take legal measures to enforce its entitlement to damages in accordance with the contract terms."

In a statement, a spokeswoman for Navios characterized the contract as active. “Navios Logistics believes that the contract remains in force and expect Vale to fulfill its obligations. Alternatively, Navios will take legal measures to enforce its entitlement to damages in accordance with the contract terms.”

Navios also noted that an inability to obtain credit for the completion of port facilities at Nueva Palmira could affect its ability to service its agreement with Vale. Navios estimated the investment cost for the facility at $150 million, financed with a combination of cash, debt and export financing. It noted that the contract contained "certain benchmarks during the construction phase of the expansion. If such construction benchmarks are not met the contract may be terminated."

The contract, signed in 2013, would have generated $35 million to $50 million in annual earnings. In return, Navios would have handled four to six million tons of ore per year for Vale, with a guaranteed minimum.

In 2015, Vale accounted for about 28 percent of Navios Logistics' business, up from 19 percent in 2013.

In response to the 2015 financial report and the news of the contract termination, ratings firm Moody's downgraded Navios Maritime Holdings' rating, to Caa3 from Caa1, and increased its estimate of Navios' probability of default. It also downgraded the ratings of the company's bonds; its outlook for the future of all of Navios' ratings is negative. 

Moody's cited the 2015 financial performance, poor conditions in the dry bulk segment, and Vale's decision to cancel the storage and transshipment contract, which it expects to reduce future income for Navios. 

Navios' stock was trading at $1.34 on Wednesday afternoon, down 16 percent from Friday.