Brazilian miner
Vale S.A
(
VALE
) recently completed the sale of its Colombian coal assets for $407
million in cash to a unit of The Goldman Sachs Group, Inc.
(GS)-owned Columbian Natural Resources.
The sale of such coal assets is a consequence of Vale's shifted
focus from electricity-generating thermal coal mining to coking
coal operations for steel mill usage. With this strategy in mind,
Vale planned to sell 100% of its coal mines - El Hatillo and Cerro
Largo in the department of Cesar, as well as its port terminal
Sociedad Portuaria Rio Córdoba on the Caribbean coast. The company
announced such plan under an agreement a month ago.
Further, the company also intended to sell the mines of
Ferrocarriles Del Norte de Colombia, in which Vale had 8.43% stake.
Currently, Ferrocarriles Del Norte de Colombia operates the railway
between the mines and the terminal and Colombian Natural Resources
owns a stake in the railway and mines.
Rio de Janeiro-based Vale's strategy of such divestment looks
favorable. We believe these strategies will not only generate
additional cash flow, but also reduce operational cost. Moreover,
Vale's plan to diversify into the areas of coking coal will help
the company to keep up with the steel mill demands on the back of
infrastructural development.
In a separate story, Vale has been reported to prepare for
building the world's largest single processing plant for palm oil
by 2015. This seems an effort to cut the company's vast fuel costs.
The company has cleared an area in the rainforest to grow palm oil
for conversion to biodiesel to run the company's machinery, ships,
trains and trucks. Such project effort is also expected to develop
the struggling Amazon region at the same time. We believe such an
investment will promise a better future for Vale's organic growth
pipeline.
Vale S.A. is one of the world's largest producers and exporters
of iron ore and pellets. The company keeps improvising its
competitiveness against rival companies, such as
Rio Tinto plc
(
RIO
) and
BHP Billiton Ltd
(
BHP
).
Vale holds a Zacks #3 Rank, which translates into a short-term
(1-3 months) 'Hold' rating.
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