Is Vale a Buying Opportunity?

Vale (VALE) announced third quarter ended September 30, 2015 net revenue of $1.35 billion, down 18.2 percent sequentially from $1.65 million in the second quarter of 2015 and down 36.3 percent year-over-year from $2.12 billion in the third quarter of 2014.

Vale declared third quarter of 2015 adjusted EBITDA of $193 million or $0.41 of diluted loss per share, down 52.5 percent sequentially from $406 million or $0.33 of diluted earnings per share in the second quarter of 2015 and down 75.3 percent year-over-year from $781 million or $0.28 of diluted loss per share in third quarter of 2014.

Vale reported continued decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment and the continued depreciation of approximately 28% of BRL against the USD in the third quarter of 2015 against 3% appreciation of BRL against the US dollar during second quarter of 2015.

Making smart moves

Vale is strategically investing into the development of ferrous mineral projects such as, Carajas Serra Sul, CLN S11D, Caue Itabiritos and CSP.
Further, there are certain coal projects in the development pipeline as well including, Moatize II and Nacala Corridor.

The key metals miner is uniquely controlling its capital expenditures over the quarters and year-over-year to sustain enough of the free cash flows to invest strategically into the development of ongoing projects and several other sustainable profitable projects.

In addition, Vale is brilliantly managing its project portfolio and sold extremely big ore carriers of about 400,000 tons deadweight for an approximate total transaction cost of US$ 448 million to China Merchants Energy Shipping Co. or China Merchants during the third quarter of 2015.

The key ore mining company concluded the sale of preferred class A shares, depicting 36.4% of the net capital of Mineracoes Brasileiras Reunidas S.A.- MBR for a total cost of R$4.0 billion or similar to US$1.089 billion.

Vale seems to be focused on managing the continued rising costs and directed towards generating free cash flows by selling off the non-core assets.

Vale is keen on optimizing its net debt position by minimizing the non-core capital expenditures while maximizing the shareholder returns by maintaining a healthy cash position.

Moody's Investors Service has altered the rating outlook for Vale S.A. (Vale) and linked rating to negative from stable as well as reaffirmed the company’s Baa2 senior unsecured rating primarily due to the company’s notable portfolio of long lived assets, competitive cost position and diversified product base.

The consensus estimate among 28 polled investment analysts evaluating Vale SA (ADR) suggests investors to “Hold” their position in the company. This consensus estimate is maintained since the investment analyst’s sentiments declined on Sep 24, 2014. The earlier consensus estimate suggested that Vale SA (ADR) will outperform the market.

A majority of the key investment analysts seems quite positive about the longer term growth prospects of the company and thus, suggests a “Hold” rating on the stock.


Overall, the investors are advised to “Hold” their position in Vale S.A. looking at the company’s significant growth opportunities and its currently weaker financial position with notable total debt of $31.92 billion against weaker total cash position of $4.56 billion, restricting the company to make future growth investments. The PEG ratio of -413.00 indicates no company growth but decline. The profit margin of -18.40% signifies no profit but loss.
Published on Jan 21, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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