Markets

Top 3 Sources of Value for Vale

Vale (NYSE:VALE) is one of the world's largest mining companies and is headquartered in Brazil. It is the world leader in iron ore and iron ore pellets production and also has access to the world's largest nickel reserves. Apart from iron ore and nickel, Vale also produces bauxite, alumina, aluminium, copper, precious gems and minerals and other base metals. Vale operates a large logistics network based in Brazil which includes railroad, maritime terminals and a port. Vale competes with metals and mining giants like Rio Tinto (NYSE:RIO), BHP Billiton ( BHP ) and Alcoa ( AA ).

Our price estimate for Vale stands at $42 , which is roughly 30% ahead of market price.

Below, we take a look at 3 key sources of income which contribute to Vale's stock value.

1) Ferrous minerals division - represents 63% of the company's stock value

Ferrous Minerals division is by far the most valuable division for the company. Currently, more than 75% of the company's profits come from this division. This division includes vale's iron ore, iron ore pellet, pig iron, manganese and ferroalloys shipments, with China being its largest consumer with 60% market share.

Overall, more than 70% of Vale's iron ore is shipped to Asian countries. Vale operates three systems in Brazil for producing and distributing iron ore - the fully integrated northern and southeastern systems, consisting of mines, railroads, a maritime terminal and a port. The third is the southern system and consists of three mining complexes and two maritime terminals.

See the top forecasts for the Ferrous Minerals division

2) Nickel division - 15%

Nickel is the second most important division for Vale. Vale conducts its nickel operations primarily through its wholly owned subsidiary Vale Inco. Vale Inco operates two nickel production systems, one in North America and Europe and the other in Asia and the South Pacific.Vale Inco was formed following the acquisition of Inco Limited by Companhia Vale do Rio Doce, formerly called CVRD or Vale for short. Following the acquisition, the combined entity took the name Vale for branding purposes.

See the top forecasts for the flat Nickel division

3) Copper & Other Base Metals division - 6%

The copper division consists of Vale's copper, precious gems and metals and cobalt sales. Vale's copper operations are carried out at the parent company level in Brazil and through its subsidiary - Vale Inco in Canada, where it is recovered as a by-product of Nickel operations in Canada. Other base metals are also recovered as a by-product of Vale's nickel and copper mining.

See the top forecasts for the South American Mines division

Vale's relies heavily on iron ore for its revenues and so is highly dependent on iron ore prices. We currently expect iron ore prices to decline in the future based on and eventual over supply of the mineral globally. This could weigh on the market price and cause us to lower our price estimate. For now, we still see value in the shares from our $42 price estimate.

See our full analysis for Vale's stock here

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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