On Aug 14, 2013, we reiterated our Neutral recommendation on
) based on its mixed second-quarter 2013 performance.
Why the Reiteration?
Vale reported mixed results for the second quarter of 2013,
with a year-over-year increase in earnings, while revenues
lagged. In the quarter, the company faced lower production for
many of its products. While the production of iron ore, pellets,
manganese, gold, coal, nickel and copper increased, potash and
phosphate rock experienced a sequential decline.
Vale was able to reduce costs significantly. In the second
quarter, the company saved roughly $736.0 million. Additionally,
the production of base metals increased year over year in the
quarter, with the help of new facilities as well as expansion of
the existing ones.
Vale also has a geographical advantage to tap the immense
growth potential that Brazil offers. Moreover, rapid consumption
in the U.S. and the emerging markets like India and Southeast
Asia as well as recovery and urbanization in China and Japan are
likely to infuse further sales growth in the coming quarters.
However, in spite of a rise in the base metals production,
iron ore volumes declined during the quarter due to license and
permit issues. The total production dropped 9.1% year over year.
The company missed its targeted iron ore production for the first
half of 2013 by 2.7 metric tons.
Rising oil price and mining cost inflation have also been
affecting margins. Moreover, mining and income taxation on miners
including Vale have been threatening financial results for quite
some time. Vale faces significant fluctuations in currency prices
and suffered the negative effect of currency depreciation of the
Brazilian real against the U.S. dollar in the second quarter of
2013. Moreover, Vale being a cyclical stock is largely influenced
by economic activities and market movements.
Other Stocks to Consider
Vale currently carries a Zacks Rank #3 (Hold). Other stocks
worth a watch in the mining industry are
Nippon Steel & Sumitomo Metal Corporation
Alderon Iron Ore Corp.
). While Ternium and Nippon Steel carry a Zacks Rank #1 (Strong
Buy), Alderon Iron carries a Zacks Rank #2 (Buy).
ALDERON IRON (AXX): Free Stock Analysis
NIPPON STEEL CP (NSSMY): Get Free Report
TERNIUM SA-ADR (TX): Free Stock Analysis
VALE SA (VALE): Free Stock Analysis Report
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