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Vale: International Mining Demand Will Spur Value Creation – Seeking Alpha

Aerial Wiev of Open-pit iron mine

temizyurek/E+ via Getty Images

temizyurek/E+ via Getty Images
Since I last wrote about the company, Vale (NYSE:VALE) has had a +35% change in price. I doubled down on my position and lowered my overall cost basis. That proved to be a solid investment. It turns out the world was even more resource dry than we thought, and companies with sizes like Vale’s were relied upon for copper and nickel. This investment won’t go away as much of the supply chain has been handed out to large government entities that need private partnerships to rebuild municipal and local economics.
Vale has made major improvements in terms of its production and exploration capacity. Currently, the company boasts a strong dividend yield that most other Western mining companies can’t match. With the low earnings multiple and the high dividend yield, Vale is in a prime position to continue its current momentum. The pledge to shareholders so far has to near the good fruits of growth and payouts so far this year.

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation
Vale is so stretched vertically along the supply chain that it can handle the variety of political pressure that comes its way. Globally, there has been a significant push toward sustainable investing, and many institutions are at the fate of the investment committees that invest in them. This could be a substantial problem for most other mining, but vale has been very proactive, and so far, there has been limited government tension with their activities.

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation
The value created cannot be ignored, and the payout to shareholders has shown that Vale cares about their field and is willing to pay out a majority of their income to shareholders. This allows the company to be less cyclical and take market volatility better due to its bi-annual payout dividend structure. It encourages investors to stay longer because they only retain the benefits of owning Vale through multiple quarters of ownership.
There have been various concerns about the state of global supply chains after the global pandemic. As an international community, that is still afflicting us today and needs to be taken seriously. However, that also causes issues with various aspects of the supply chain because workers essential for operation in some cases can’t complete their jobs. The beauty of Vale is that they have internal people run existing production to help fuel exploration.

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation
Mineral deposits in the Americas are now immensely important due to geopolitical conflicts. With nickel and copper prices soaring, Vale managed to benefit from that by offsetting costs to producers. One portion of Vale I am slightly nervous about is their mines in Southeast Asia. Overall the portfolio has a range of geographies and should help stabilize any imminent risks the company may face.

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation

Vale Q4 2021 Earnings Presentation
Inflation is a major issue that Vale has been hard at work to address. By having relatively stable fixed costs due to their vertical integration, they are somewhat insulated from the macro effects of rate hike increases. Because of this, Vale is stable and will hold up under harsh market conditions.
Vale has shown extensive knowledge and expertise in the mining sector, and they continue to thrive. Even though the Southeast section of their portfolio is highly comprised, they have their core operations in the Americas which have proven to be a profitable endeavor. Despite some macro headwinds overall, the fundamental earnings picture of Vale will continue to increase due to their increased production and focus on reducing their impact. While this may seem fluffy on the surface, it does matter when the company will be dealing with regulators. As the company continues to make these strides, it can branch outside of its main markets and toward potentially other commodities in high demand. And help them build out the infrastructure on their small projects. This is just one way to diversify their already robust portfolio of mining properties. These minor tweaks to their international position may seem small until it adds up on earnings reports over time.
The valuation can improve from these levels due to the positive cyclical pressure exerted on mining companies. Mining is a small space dominated by a few giants. Rio Tinto is one of the biggest mining conglomerates globally, focusing on Iron, Copper, diamonds, and Gold. Another such company is BHP group which focuses on mining metals and petroleum-related industries. These companies are the three biggest mining producers in the world.

Vale Seeking Alpha EV/EBITDA Peer Comparison

Vale Seeking Alpha EV/EBITDA Peer Comparison

Vale Seeking Alpha EV/EBITDA Peer Comparison
Vale has had a discount relative to the group for a time. This has to do with their international presence and negative political pressures associated with that. In a turn of events, it matters more that they have no significant relation to any country involved in the eastern European conflict. Vale can play Switzerland with their materials, and to me, that signals a strong earnings report in the future due to the amount of net income they will get from intentional clients due to supply shortages.
Vale has a unique market solution to the leading mining company in South America. The recent macroeconomic fundamentals have shifted political influence away from the major countries and more toward private multinational organizations that help fund infighting. Regardless of the geopolitics, Vale has had its place in my portfolio for some time, and I look forward to future developments the company has to offer.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of VALE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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