Look at This Big Brazilian Miner Before It's Too Late
On Monday, I began to write this article about Vale
"It can wait until tomorrow," I told myself. Well, when "tomorrow" hit, VALE shares soared over 5% on heavier-than-normal volume. The analyst and investment communities are finally beginning to wake up to what a compelling opportunity VALE offers. I'm not a "dollar short" because I was already long shares of VALE.
Vale engages in the research, production and marketing of iron ore and pellets, nickel, fertilizers, copper, coal, manganese, ferroalloys, cobalt, platinum group metals, and precious metals in Brazil and abroad.
On Monday, a group of analysts at Canaccord apparently scanned the base-metals companies they cover and adjusted their pricing models downward. When they completed their analysis of global base-metals companies, only VALE was awarded an upgrade to "buy."
The main reason they lifted VALE's rating was because it offers "... low-cost growth at a reasonable valuation," which is a good criterion for any promising investment.
Back in March, the team of analysts at Merrill Lynch that cover the company praised VALE's decision to suspend investing in its Rio Colorado potash mining in Argentina. The team had some insightful comments to share about this prescient decision:
"In the short term, the suspension of Rio Colorado should have a negative impact on Vale. Project's pending cash commitments should total U.S. $600 million-$1 billion, and the company could have U.S. $2.5 billion-$3 billion in write downs (non cash). However, we think this should have significant long-term savings."
The Merrill analysts went on to explain: "Press reports suggest the capex for the project jumped to U.S. $11 billion from $6 billion (last budget). We think Vale still wants to keep the option open, if market conditions dramatically change, but it's clear the company will only resume the project if it has high returns." Translation: The cost of the Rio Colorado project was too expensive and VALE said, "Enough, and we will revisit this opportunity later."