We have recently upgraded our recommendation on
) from Underperform to Neutral.
We are optimistic on the growing commercial market for miners
like Vale, particularly on the back of rising spot prices for
metals and minerals. Moreover, rapid consumption in the US, China,
and Japan are anticipated to infuse further sales growth
Vale leverages its operational efficiency and mining development
to drive top-line growth. The company focuses on volume growth of
bulk material, which we believe will certainly boost the company's
sales in the coming quarters.
Vale plans to diversify further in areas of coal, copper and
fertilizers, while maintaining a competitive position in iron ore
and nickel. The company's investment in research and development,
supporting its search for new mine reserves, is expected to boost
Moreover, the large logistics systems, integrated with mining
operations, add value to the balance sheet. This reduces shipping
cost of metals and minerals as well. Also, Vale's strategies of
divestment appear favorable-generating additional cash flow while
reducing operational cost.
However, the flipside scenario raises concern. The volatile
international iron ore market has been impacting the company's
financials and dampening sales. Rising oil price and mining cost
inflation have also been affecting margins.
The company often faces governmental delays on permits and tight
environmental regulations and policies. Moreover, mining and income
taxation thwarts top-line results. In addition, resource
nationalism within the regions of operation and declining iron ore
grades inflate costs.
Mention may be made of current instability and a
slower-than-expected global growth, which has been leading to an
oscillating stock performance. Also, significant currency
fluctuations, competitive pricing, natural disasters, and shortages
of skilled workers continue to threaten stock performance.
Rio de Janeiro-based, 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
BHP Billiton Ltd
Vale holds a Zacks #3 Rank, which translates into a short-term
(1-3 months) 'Hold' rating.
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