We issued an updated research report on the premium industrial metals & minerals company Vale S.A. VALE on Jul 28, 2015. The company is regarded as the largest exporter and importer of iron ore and pellets in the global mining market. Since 1942, the company has significantly improved the scale of its business with the help of tactical strategies. However, the company’s trade currently faces certain external headwinds.
Scope for Improvement
Vale reported sound operational performance in second-quarter 2015. Apart from phosphate rock and coal, volumes of almost all products such as iron ore, pellets, manganese, nickel, copper and potash exceeded the respective year-ago tallies. Record productivity in the company's major mines and favorable climatic conditions supported sturdy production volumes. Backed by such superior yield, Vale is expected to witness greater manufacturing economies in the near future, which would, in turn, widen its margin.
In the quarters ahead, the company desires to improve its business on the back of specialized cost-saving plans, productivity enhancement strategies, organic growth projects and superior operations in the N4WS mine. Moreover, with efficient disinvestment programs and tactful capital-deployment strategies, the company aims to stabilize its absolute debt level in the near term.
Problems to Consider
Excess supply over demand, economic downturn in China and severe rivalry between mining giants recently triggered a fall in iron ore prices. Weakening market prices of iron ore continue to hurt Vale's aggregate revenues and margins.
On the other hand, the company’s plans to augment production for maintaining economies of scale are likely to spread negative sentiment among investors. This is because rising output would only add to the global supply of the material, thereby weighing on its equilibrium prices. This would ultimately drag the price of iron ore further downward, dampening the company's top- and bottom-line results in the upcoming quarters.
Vale’s Base Metals’ Initial Public Offering (‘‘IPO’’) deal, announced long back, is also at stake due to poor productivity of copper and nickel as well as weak market prices. The deal, if it finally materializes, would boost the company's liquidity in the near future, helping to fund growth-centric mega-business projects.
Stocks to Consider
Vale currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Cliffs Natural Resources Inc. CLF, Akzo Nobel N.V. AKZOY and Avino Silver & Gold Mines Ltd. ASM. All three stocks hold a Zacks Rank #2 (Buy).
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Click to get this free report VALE SA (VALE): Free Stock Analysis Report CLIFFS NATURAL (CLF): Free Stock Analysis Report AKZO NOBEL NV (AKZOY): Free Stock Analysis Report AVINO SILVER&GD (ASM): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research