Vale S.A. (VALE) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning ladies and gentlemen. Welcome to Vale's conference call to discuss First Quarter 2021 results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and- answer session and instructions will be given at that time. As a reminder, this conference is being recorded and the recording will be available on the company's website at vale.com at the Investors link. This conference call is accompanied by a slide presentation, also available at the Investors link at the company's website and is transmitted via Internet as well. The broadcasting via Internet, both the audio and the slide chain has a few second delay in relation to the audio transmitted via phone.
Eduardo De Salles Bartolomeo: Thank you, good morning everyone. First of all, I hope you are all fine. The first quarter of 2021, we kept our guards up in our operations as the COVID pandemic accelerated in Brazil. We have kept all safety measures and revision procedures in optimum operations. And I want to reinforce that only essential professionals are allowed in our sites. In April, we completed 13 months since the start of restrictive measures against the pandemic and over 25% of our workforce is still working remote. Safety, people and reparation, these three words have been our priority since 2019 and they continue to make more sense now in this very critical moment for all of us. Well, a crisis of this dimension requires the urgency to do what's in within our reach in the best way and as effective as possible. We have been collaborating with governments and communities since the beginning and we continue to focus our efforts on the most critical items in this fight. For this reason, Vale and other companies have forced us to buy and donate 3.4 million medicines for intubation. In contribution to the national immunization plan, Vale allocated resources for the expansion of the vaccine production of the Butantan Institute with an estimated production capacity of up to 100 million doses per year and for the donation of 50 million syringes to the Ministry of Health of Brazil. We are attentive so that our support is accurate and effective and that our help directly reach the people in need. This is part of our new practice society.
Marcello Spinelli: Thank you, Eduardo. Good afternoon all. Well we've been updating above the resumption plan to reach 400 million tons next year. I'm going to use the same slide to facilitate our explanation and start in my left hand side. So you see the bar today remember that the concept that evolved from now that's the capacity we have for a year. We came from a number, the 320 the last quarter, now we have the 327. We had an additional capacity in Timbopeba of 7 million tons. Remember that we were running with three lines. We had with this setup of other three lines. So we have a full capacity to Timbopeba now, but should be 325. So we have a minus 2 that we already update the forecast of Itabira. Itabira in the last call we said that would reach a minus 9, we still have this minus 7 as above for Itabira. Itabira, we have a temporary problem there with the lack of capacity for the disposal of the as we evolve during the year, we can update this minus 7, but we already put here the minus 2. So that's the number of capacity today. I want to highlight also in the right hand side at the bottom, the information that Vargem Grande. Now we now have the startup of the tailing filtration plant. We're not adding yet a capacity here. It will be important to the second half, when we have the whole feature of Vargem Grande growing. But it's important milestone. That's the first plan of a sequence of plans coming from Brucutu and Itabira and it's an important milestone to highlight. I want to emphasize that we are really committed to deliver the production guidance for this year. Our range from between 315 to 335 million tons. What support this formation? Well, firstly, we started this year in a very much better way compared to Q1 last year. As Eduardo said, we added 8 million tons this year compared to last year. Seasonally, the second quarter is better than the first quarter, you know very well that due to the end of the rainy season in the south and the southeast of Brazil even in the north, we still have the rainy season there. But June is usually drier than other months and the rainy season. So we're counting on that to improve our production and you can affirm that we have our guidance in perspective. As Eduardo said it's a lot of information.
Luciano Siani Pires: Good morning, good afternoon. Some highlights on the financial results. Starting by cash flows as you saw they were very strong in a quarter. Working capital had a positive contribution of 550 million. You may have been surprised, but actually the very strong sales of the fourth quarter of last year were collected this quarter more than 1.4 billion in reduction in accounts receivable and remember that prices spiked at the end of December remained strong in January. So that was the reason why working capital evolved positively despite also the first quarter being very heavy on other payments like payment to suppliers, inventory billed, profit shared with employees, but still working capital moved positive.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from Alex Hacking from Citi.
Alex Hacking: Yes. Good morning everyone and thanks for the time. I guess, I wanted to ask about the potential for a base metal spin-off that's creating some headlines this morning. If you could just give us some color on where you are in your thought process there? What kind of transaction you would, potential transaction you would be considering? What kind of assets you would be considering putting in it? And then what would be the sort of logic behind any potential transaction? Thank you very much.
Eduardo De Salles Bartolomeo: Thanks Alex. Well, let me be clear here with obviously, we are always analyzing this opportunities okay. That's a main, how can I say driver behind us. What is really pushing us to that situation I think it's twofold. One is that we are in the midst of the foundation of recovering the business and we believe we are on the right track. And secondly, we are undervalued both on the Vale as a whole and on this metal story. So it's a clear way to unlock value just in the basis of the multiples. So what we said and I would be clear now to give you where our minds are, it's in the exactly the conceptual phase of analyzing what does that mean. First of all, let's put it this way, we have assets as you know in Karajas there are intertwined with the iron ore assets. We need to find out a way to how we deal with that that's one issue that we are, that we have to deal with, how we organize ourselves inside. So there are several aspects within, how can I say the pre-condition to do the business that we are studying that said analyzing. What is important and then I might because now we're in the English fully, I can ask Mike, Mark to help me on that. We have first of all, as I mentioned before to work on the foundations and on the narrative. The foundations are very clear since the beginning. We need to get the North Atlantic operations productive and operating adequately. We need to replace capacity so voice is base copper cliff mine and the sales of VNC. One of the things that triggers us as well as you ask about our mines where they are, is the sales of VNC. It unleashes us to think differently about the business. But I'll ask Mark because he's head in the business and I was heading beforehand as well, what is the narrative, I think Vale has a unique narrative here that we might be able to exploit. But not to be overly repetitive, we are on a phase of studying it, analyzing the possibility. Could you help me on that Mark?
Mark Travers: Sure Eduardo and Alex, I think Eduardo said out very well like the path really is to make sure that we get the optimal value for base metals and he spoke about the need to build the foundation. Maybe the narrative or maybe the strategic direction to optimize value I can spend a minute or two on it. So I think more and more we're focusing in on copper, nickel in our business as a key for our participation in the decarbonization of the economy. We clearly have lots of opportunities, which we've described in previous calls and on Vale day around copper where we have a current pipeline of projects that should bring us to about 500,000 tons of copper per year in the next few years with Salobo III, Cristalino, Alemão. We also have a number of projects around the Carajás area, which can optimize through synergies with the iron ore business and the current infrastructure in the area plus some other options for example, Victoria project in Canada and project that can get us up to 900,000 tons. So clearly, even within the internal pipeline we have significant opportunities for growth. On the nickel side, we spent a lot of time recently talking about the dynamic of electric vehicles and what is bringing to the industry and clearly we are going down that path of the electric vehicle penetration in the auto industry and the inclusion of nickel in the batteries for those vehicles, our approach is that we have the products. We have the products that have diversity and quality and form to go into the electric vehicle battery and we have the ESG credentials and we continue to try and build those and those credentials relate to the low carbon intensity of our product coming from well regulated respected regimes such as Canada. So really, what we're going to really focus in on is, seeing that narrative or opportunity to build in this area currently just to give a little bit of an update we have buyers who are very interested in the products that we produce right now in the electric vehicle space. We recently signed a significant multi-year contract with an OEM. It represents about 5% of our class one nickel and we see further opportunities to grow the sale of our class one nickel into this space. We have some other opportunities there in terms of moving our products around. We have some opportunities with maybe some relatively smaller investments to repurpose some of our production lines to get a little bit more out and then we have other opportunities for growth, which we look at and we have a lot of government interests talking to us to try and tease some of this out. So in the end we're looking to build up to about 30% to 40% of our class one nickel going into the EV space. So Eduardo, I think that's probably the narrative that I would give in terms of how we increase value within the base metals business.
Eduardo De Salles Bartolomeo: And Alex, just conclude it's a process that as you asked there are several questions that have to be answered. We are in the initial phase of going back with that view that we had in 2014, but in a much different way. Now we think we have a better foundation. We have still work to do in the foundation. We have a better narrative now and of course there are several questions that has to be answered as you ask, how would be the potential transaction. We didn't get to that yet. We're just in the beginning phase of analyzing the possibility to unlock them. I hope I have answered your question.
Operator: Our next question comes from Timna Tanners with Bank of America.
Timna Tanners: Yes. Good afternoon and thanks for the color. I wanted to get your perspective on the situation in China. It's been interesting to watch iron ore prices rise even as China talks about cutting production and yet very little production actually cut as you point out in your release in the first quarter. So just want a little bit more of your perspective on what's happening there and what you see happening as the year progresses? And then if I could, a second question it's just on any impact that we should think about or prepare for with regard to the Samarco bankruptcy filing? Thanks guys.
Eduardo De Salles Bartolomeo: Go ahead Mr. China Spinelli.
Marcello Spinelli: Timna, thank you for the question. Well, China as you said, we have two points, two main questions actually. We have a solid demand based on the stimulus and based on all trade war problem that started some time ago. China is going really well. All the indicators we can see coming from properties 7.8 growth rate considering New Year's manufacturing and infrastructure a lot of starts, new starts last year, they are under construction this year. So we have the scenario of a fantastic demand coming. The question that we have open here for how long we're going to have this stimulus. In our perspective, we don't see a huge process to stop this. We see as a smooth process coming on the second half. We don't see this in this half. We're going to face a stronger demand the next quarter, but for the rest of the year we can see something going on in this way. On the other hand, this two suppliers you said, China just after the two sessions with the party meeting, they came to the world as a country that definitely are going after the capitalization. They are really, being really strong about this. We as you see, the second question is how will be the rollout of this? We see our market intelligence, we can see that they are coming really seriously at this time. We can see Cesar try to control this process with their three actions that they see, the two or three -- they say that if you want to get the guys that didn't do their homework, the swap production or didn't follow the permit to get something in two years, three years ago or they are not compliant to the ultra emissions, low emissions that they should comply on. And although they say that if you are complied to the ultra emission part of the production are going really well in this area. The EU should allow. So again, what we can see, the interest is declining, burst furnace in a very high utilization. So this scenario Timna for instance is to have high prices. You can decline in the second half and mostly high premiums. We can see a support for the premium for the whole year. If you consider that the digitization of burst furnace will be high price, price substitute will be high, margins high. So this scenario for our forecast is to have the premiums in this level for the whole year. I will pass to Luciana for Samarco.
A – Luciano Siani Pires: Timna, Vale is going to be a BHB as well, we're going to be spectators in the this Samarco JR bankruptcy filing. So the company has started to operate. The creditors have got some sentences in their favor, left the company no alternative, but to file for JR. The process will take at least 240 days by law, likely more. The company is generating operational cash flows. Those cash flows will be available for distribution to the creditors. This is going to be done through an organized process in court. And we don't have any expectation to have residual equity value from Samarco and also there is no expectation whatsoever of any additional capital injections to support operations at Samarco given that the debt is no recourse to Vale and BHB. So we're going to be at the stands watching what's going on.
Operator: Our next question comes from Mr. David Gagliano with BMO.
David Gagliano: Hi, thanks for taking my questions. I just wanted to drill down a little bit more on the capital allocation questions and issues. First of all, has Vale bought back any of the 270 million shares associated with the buyback that was announced in April?
Luciano Siani Pires: David, yes we have. You're going to see the monthly reports. We will require required to file with the securities regulator in Brazil. So it's going to be available for everyone. However, just notice that we had blackout period because of these results issued yesterday. And therefore, in the 15 days prior to the issue of the results, we were not able to buyback any shares by regulation.
David Gagliano: And then just going forward obviously, you mentioned that obviously after regular dividends, total CapEx, payments are still a lot of cash here. And so, the question in terms of a little more detail in terms of how we should expect from a cadence from a timing perspective and in what form should we expect these incremental shareholder returns over and above the regular dividends? Is this something we should be expecting before say for example, the next regular dividend payment?
Luciano Siani Pires: We haven't discussed that so as you said the regular payments occurred just in March and September. So the more obvious way to allocate return cash to shareholders in between is through an acceleration of the buyback but this could be discussed with the upcoming board which will be elected if we should or not do something interim.
Eduardo De Salles Bartolomeo: Luciano, just to add on that I think the keyword here David is consistency. We don't want to be stuck to the September, March dates, but of course we need always to gauge the market that we are in sometimes overly optimistic, sometimes wonder over pessimistic like last year in March. So we did about the buyback in between because it was clear that we had to do it. But normally we would be willing to do consistently, but as Luciano mentioned, we have to talk to the board. And you should expect of course dividends about minimum payments.
Operator: Our next question comes from Mr. Carlos De Alba with Morgan Stanley.
Carlos De Alba: Thank you very much. Good afternoon. I guess on the same topic Eduardo, Luciano, are there any, I mean, clearly the company generates a lot of cash flows. It was surprisingly strong a quarter on that regard as you mentioned prices are higher. Are there any caps or limits to the amount of dividends especially dividends that you would propose the company or the board for the company to pay? I guess the regular dividends are very clearly defined by a formula and we can probably look at the growth CapEx or potential growth projects on base metals. But other than that is there any cap or limit to the amount of dividends that the company would consider paying back to shareholders? And my second question if I may, is on the Muati's divestiture process. How can we, what are the expectations in terms of timing or next steps that we should expect from that process and also Luciano maybe if you can walk us through how the process of incorporation of into Vale's books would look like? I guess you will have to increase your debt and your interest payments in the coming quarters? Thank you.
Eduardo De Salles Bartolomeo: Luciano, just let me get the first one. I think there is no cap. There is always a balance of course, and again we need to assess market conditions, debt structure, capital structure and then again as I think you pointed out very correctly, our CapEx is pretty well behaved, is all around platforms or growth so you don't, you shouldn't expect extreme CapEx so there's nothing radar like that. And secondly, a question that a lot of people makes, so I will take the opportunity to make it clear there's no transformation in M&A in our radar as well. So with that said and Luciano mentioned in the beginning, I'm just paraphrasing Luciano the return is going to go to the shareholders, right Luciano?
A – Luciano Siani Pires: Yes. On Muati’s, so we just finalized the revamp which started to ramp up. We hope it will be quick. We hope by the beginning of the second half we'll be already producing at 50 million tons. By the end of the year, we should receive equipment on site in order to upgrade the production to 18 million tons. If you consider today's thermal coal prices and mat coal prices a little higher than that maybe 130, 140. The business can turn maybe that positive quite soon and be cash flow positive at the beginning of next year without the burden of the project finance and that goes to your following question. The burden of the project finance was always felt within Vale's financial results through the EBITDA of coal. So coal EBITDA is penalized today because the mine pays a tariff for the corridor which is punitive because it needs to be, so in order to repay the project finance. So when you watch less 150 million for example, EBITDA for coal about 100 million negative is just a service of the project finance funded through the tariff. Once you purchase Mitsui, what's going to happen is that everything is going to be consolidated and therefore the project finance will become Vale's debt and those 400 million a year or 300 million, 400 million they will be seen at the financial statements, part of it as interest and part of it as just that debt repayment. But on the other hand the coal EBITDA will immediately improve by the same amount and so that why I'm saying that you don't need much in order to turn coal EBITDA as a business positive. You just need to produce and price is slightly better than what you're seeing today. So and that leads us to the next stage, which will be given that I do have a project finance which bears Mozambican risk and higher interest rates there's obviously the opportunity to refinance at much lower Vale corporate rates and save money with that. That's what we're going to do. In terms of timing for the divestiture, we already have over 20 NDAs signed with interested parties. Obviously there is a way to go between people wanting to look at the asset and offering a firm intention to bid. We hope that we're start going to have those intentions again by beginning of the second half. Obviously, people are going to do a lot of diligence on that and if we succeed, hopefully the target would be to try to sign a deal before year end. Some variables put some risk on that. Obviously there is this dispute between China and Australia which is waiting on met coal prices, now you have all the COVID-19 situation in India, which is a big importer of thermal coal and also good weight on international thermal coal prices. So let's see if we're a little lucky, I believe we can sign a deal still by the end of the year.
Operator: Our next question comes from Mr. Alfonso Salazar with Scotiabank.
Alfonso Salazar: Thank you for the update and good morning everyone. I want to ask about the outlook of the pellet market and if you can provide some guidance regarding a production for the rest of the year and in the coming years and if you can give us some color on that?
Marcello Spinelli: It's Spinelli here. Thank you for your question. Well pallet market, let's talk about the demand side. You split this in burst furnace pellet and direct reduction pallet. The burst furnace pallet is quite the same as iron ore. We are not in China. China is going really well. It's related to the problem of necessity to improve the use of the burst furnaces there but the same pattern you see in ex-China that's our market. Very good prices, two prices margins and assisted to improve the production. So from this perspective, you can see a room for sales and premiums. The supply side in the other hand is a limitation, there is a limitation today and Vale is the key, a producer and the key opportunity today. We expect the production this year slightly better than the year before. The limitation is the pellet feed production. We have temporary restrictions to dispose of our tailings in the main sites. So Brucutu, Itabira. So we don't expect to produce more than this year, but we are targeting to go back to the 60 million tons capacity for next year. I'm not saying that 60 million tons, but we want to be ready to do that. It depends on the demand perspective, the market perspective to define that. So as a conclusion, we see a market that the premiums, we doubled the premiums in the first quarter compared to the last quarter last year. This current quarter, we again have another risk in the premiums. And we expect there is room for some another increase in the premiums as you have the demand is really tight, supply demand is tight. Just an update about the direct prediction market. That's quite the same element that I mentioned for burst furnace. We have two more ingredients here. USA coming really fast and their economy and all the stimulus that are coming, they produce, they use a lot of this scrap, but they need pellets to improve their production, direct reduction. And the Midwest is our main market because of the U.S., the increase of the use of scraps the price of scrapping in Turkey is really high that make our clients, they can charge higher price to have good margins now and definitely there is room again to improve the margins, improve the premiums in this market. So the outlook for this year, the supply is limited and we can see good premiums because of the demand that is strong in place.
Operator: Our next question comes from Christian Georges with Société Générale.
Christian Georges: Thank you very much and well done with your medical assistants in Brazil, it is very good indeed. I had two questions for you. One of them is, you just said no transformative M&A, even in a scenario of higher prices for longer and large cash flow. Does that exclude also some small M&A on copper because in your statement you seem to be very positive near term and long term on capital outlook? So is this an area where you make some consider putting some cash in a large cash availability scenario? And on the side of that would you consider an investment in hydrogen in the context of your customers in steel sector? I'm trying to move the greens to decarbonize. Can you be part of that or is that something which you're just looking at from a distance? And the second question is on nickel. You're out of New Caledonia. You're seriously in Indonesia. What was the situation with just to nickel out there, moving to being able to sulfate and serve the battery market? Is it something you're still looking at down there or is it something you're looking at on the doing from Canada and Brazil? Thank you.
A – Eduardo De Salles Bartolomeo: Hey Christian first of all thank you for the announcement of the medical assistance. Thanks very much. Yes, you're right there's no transformative M&A. We are always looking for copper. It's very hard as you might understand but we could, we shouldn't stop. So obviously it's one area of interest. Another area of interest is energy and we have a very bold goal to eliminate our clean energy, not eliminate substitute have all of our matrix for clean. So might happen to have some very small acquisition on that environment and hydrogen specifically it brings us to another subject that is very dear to our heart because we just announced, the scope three targets one of the few that did that by the way and we are following up some players that are doing that but necessary I think more on the watching how can I say that seat. We are actually working very close to our customers. It's inadequate goal, but I think because of time constraints we wouldn't go there that far, but we're looking to help our clients with high quality iron ore and high quality metallics that will be needed if hydrogen and we believe hydrogen is the best to get with carbon capture, best alternatives for theses steel industry. But we are watching closely what the hydrogen is happening but no investments on that okay. And I think for nickel I think it's better to Mark to answer. He will be more short and more objective.
Mark Travers: Sure. Christian, in terms of class sorry the sulfate you're right. The primary area of focus would be the Canadian nickel. But there are opportunities in Indonesia that the most prominent of which is the project that is being studied and being discussed with Sumatomo metals that would be a clear -- that product would clearly go into the sulfate market. So that one's right in front of us. The other ones are I would say aspirational or early, there are opportunities but nothing really of significance at that point in time. For example, there are call projects that are on the books by others in Indonesia and there are parties that are interested in our for example, but there's nothing significant at this point in time.
Operator: Our next question comes from Mr. Andreas Bokkenheuser with UBS.
Andreas Bokkenheuser: Thank you very much for taking my question. I hope you're all safe and well. Well two questions. A volume question and then a freight question. The volume question is kind of two parts and you talked about it a little bit already. But Vale obviously has a number of licenses that are kind of required to reach your production goal of 400 million tons down the line. Is there any kind of comfort or clarity that you can give us on these licenses? I mean are they merely a formality? You obviously expect to get them but there is any kind of visibility you can get that are not going to be significantly delayed at this point in time either conversations with the state or federal government on this? That's the first part of the first question and within that you obviously have always had a focus on value over volume as has your Australian peers and one of the things I'm thinking about there is your additional capacity as it kind of materializes out of the northern system in particular, but Vale's consolidated capacity could be 450 million tons. We're sitting at almost 200 ton on iron ore and if there was a time to kind of monetize that additional capacity I would think it would be now and basically add additional volumes beyond the 400 million tons with iron ore 200. So how do you think about that strategy value over volume given where prices are and given that you could have additional capacity throughout Vale's systems going forward? So that's kind of the first, sorry slightly long volume question and then the second question is not freight. Luciano, you talked about a bit of freight inflation obviously and how it impacts your second half of the year. How does that if we look beyond the second half of the year, if we look into 2022, 2023, Vale is obviously going to be putting more volume into the market that could keep trade rates high like if we're still sitting at $28 a ton by the end of next year is there additional freight inflation that kind of flows through your P&L or are you still well protected on your freight contract? So that's just a longer term view on the freight cost. So those are my two questions. Sorry if they were a little bit long.
Marcello Spinelli: No problem, Andreas. Spinelli speaking. Thank you for a question. Regarding the risk to achieve the volumes, obviously licensees or authorizations are always in our track and then we try to plan with some extra delay to keep our planning okay. So what you see, if you split the challenges in three, the north we need to keep the license as a rolling process. We just got the license of Pete in so it's business as usual. It's going well. We don't we don't see any delay. In the southeastern system we are really close to bridge the gap of the lack of capacity, dam's capacity to install the filtration. So it's in our hands actually. We have final licenses yes we have but we don't see any big deal and I explained about the Torto dam that we still have to do this but if you have delay we have a full back position for that. I'm emphasizing that we are trying to bring in our planning process buffers contingencies to be reliable in the end of the day. Jumping to your second part of your question, Vale is a mantra. So we are ready to bring back the 400 million tons and we are building the extra 50 million tons. This is 450 million tons. Why? We want to be okay with -- we want to be reliable with our target of 400 million tons and we can use an extra 50 million if the market demands that. So that's our mantra. We're going to decide these as we evolve in the market. So again, but definitely we need to be ready for an extra capacity and about the freight, finalize the freight side we again can see that we are less exposure this quarter, but this first half as Luciano said the second half its seasonally more exposure to the spot freight but don't, you must have in mind that we are bringing an additional 18 for this year that will match for the demand of 400 million tons and the next six New Castle maxes for our fleet. We are talking about 170 vessels in our fleet today. So we are growing these natural hedge for the spot market freight and definitely we consider the inflation today and the last problem was really related to small vessels to Panamax is that just came the soybean seasons that make this happen and contaminated the vessels market. So again we need to live this. We're not forecasting any big inflation for the spot market and we are working hard to have our own fleet to offset any problem in the market. And an additional point is total fleet today we have installed all these scrubbers. That's another point that we are not being affected to the gap between the high and low -- so the shipping business for us is very important to be stable.
Andreas Bokkenheuser: Said it all.
Operator: This concludes today's question-and-answer session. Mr. Eduardo at this time, you may proceed with your closing statements.
Eduardo De Salles Bartolomeo: Thank you. Thank you very much for your attention and questions. I need the rest to talk to us. I think we've been repetitive in a play from day one. It's a marathon that we're going through. I think in the Vale day we said the risking, reshaping and rewriting. The risking is advancing pretty well. Still a lot of my goals to achieve. Example, safety be more assertive on production. But we did strides very good, on the capital discipline is zero doubt that we are on that. Reshaping tremendous good example of how to do it with respect with communities. Mozambique's going to be another one. And we ratings going to watch is going to be our final mark. So we're going to be more reliable and more safe, and a more human organization that will be priced correctly. So thanks a lot. Thanks a lot for your questions because that moves us to the right direction and hope to see you in the next call.
Operator: That does conclude Vale's conference call for today. Thank you very much for participation. You may now disconnect your line.
Related Analysis
Vale Upgraded to Outperform at RBC Capital
RBC Capital analysts upgraded Vale S.A. (NYSE:VALE) to Outperform from Sector Perform, setting a new price target of $15.00 (previously $13.00). The firm anticipates a further decline in iron ore prices to reach cost support levels of $75-$80/t in the upcoming years.
Despite the unfavorable impact on Vale and its iron solutions business, the analysts mentioned that the current price reflects a long-term iron ore value of approximately $75/t. Given its recent underperformance, Vale is well-positioned to benefit from a potential sector rebound driven by stimulus expectations. Additionally, the analysts noted that the sale of its base metals stake could initiate a series of positive catalysts.
Vale S.A. Upgraded to Sector Perform at RBC Capital
The company's weak Q3 results reported in Nov 1 and Vale Day guidance saw Vale S.A. (NYSE:VALE) shares sell off and consensus earnings fall, but the rally in iron ore prices has since provided some support.
Analysts at RBC Capital increased their long-term iron ore price forecasts to $75/t from $65/t. This and a weaker BRL assumption helps to increase their NAV estimate by 39% to $20.49/share. The analysts believe Brazil risks, its EM link, and concentration in iron ore will continue to see shares discounted, however, the stock should be more resilient into future iron ore downturns. The analysts upgraded the company to sector perform from underperform, raising their price target to $17 from $12.50.