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Vale as Cheapest Miner Signals Buy to Aberdeen: Corporate Brazil

Vale SA Chief Executive Officer Murilo Ferreira
Vale SA Chief Executive Officer Murilo Ferreira is seeking to deliver more returns to shareholders by selling unprofitable assets and reviewing spending plans after increasing the dividends target for this year by 50 percent to $6 billion. Photographer: Jin Lee/Bloomberg

Vale SA, the cheapest of the world’s 15 biggest miners relative to earnings, is luring investment from BlackRock Inc. to Aberdeen Asset Management Plc after the stock slumped to the lowest in two and a half years.

The world’s largest iron-ore producer is trading at 5.2 times analysts’ earnings estimates for the next four quarters, almost half the 9.1 ratio for BHP Billiton Ltd, according to data compiled by Bloomberg. On May 2, the gap between Vale’s 6.06 price-to-earnings measure and BHP’s 11.2 ratio was the widest in at least a year.

Chief Executive Officer Murilo Ferreira is seeking to deliver more returns to shareholders by selling unprofitable assets and reviewing spending plans after increasing the dividends target for this year by 50 percent to $6 billion. The price decline means Vale is the “most obvious” stock to buy in Brazil, according to Will Landers, who manages $7 billion in Latin American equities at BlackRock.

“On any metric right now Vale looks cheap,” Nick Robinson, who helps manage $15 billion of Latin American shares at Aberdeen in Sao Paulo, said in an interview May 29. Aberdeen is considering increasing holdings that represent 5 percent of Vale’s preferred shares.

Vale, based in Rio de Janeiro, fell 0.4 percent to 36.45 reais in Sao Paulo yesterday. Before today it fell 19 percent in 12 months, more than the 16 percent decline in the Brazilian benchmark Bovespa Index. State-run oil producer Petroleo Brasileiro SA, also based in Rio, lost 24 percent during the same period, while Melbourne-based BHP, the world’s biggest mining company, dropped 27 percent in Sydney.


Ferreira, who took the helm at the Brazilian miner from Roger Agnelli a year ago, is reviewing all projects amid rising costs and labor shortages. Last year Vale delayed the start of the $8 billion Carajas Serra Sul expansion, its biggest ever, and three other projects in Brazil.

“Any project that deviates from what was approved by our board needs to be reassessed,” Ferreira told reporters on May 18. “Our target is to be focused.”

The company this month agreed to sell its El Hatillo thermal-coal mine in Colombia along with port and railway assets for $407 million to Colombian Natural Resources SAS, a unit of Goldman Sachs Group Inc. It hired Bank of Nova Scotia and Citigroup Inc. to sell its oil and natural-gas assets in Brazil, three people familiar with the matter said earlier this month. Vale also sold its stake in a Brazilian kaolin mineral business earlier this month.


Failure to complete a $21.4 billion investment plan for the year means Vale will likely have more cash to distribute to shareholders, Marcelo Aguiar, a Sao Paulo-based Goldman Sachs mining equity analyst, said in an interview in Rio on May 21. He estimates Vale will pay $8 billion in dividends this year, $2 billion more than the goal announced Jan. 16.

Vale last year paid a record $9 billion to shareholders, more than double its initial target, and bought back $3 billion worth of stock after investment fell short of initial plans.

The outlook for slowing growth in China, the biggest iron-ore consumer, and a legal dispute over 30.7 billion reais ($15.2 billion) of overdue taxes claimed by the Brazilian government may continue to hold Vale back, Aguiar said.

“That’s a problem that it has that BHP or Rio Tinto don’t have,” Aguiar, who has a buy recommendation on the shares, said about the dispute. “I like the stock a lot but those elements are very negative.”

Currency Advantage

Brazil is seeking tax payments on profits from companies’ foreign units between 1996 and 2008. The company has been challenging the claims since 2003.

Vale is probably getting close to resolving the dispute with the government, while Chinese growth is expected to accelerate in the second half of the year, spurring demand for Vale’s iron ore, BlackRock’s Landers said in an interview May 22 in Rio.

The Brazilian real’s 21 percent slump in the past year will also help make the company’s exports to China more competitive, he said. The currency this month started trading lower than 2 per U.S. dollar for the first time in three years.

“Vale is the most obvious stock to buy in this environment,” Landers said. “They’ll make a lot of money.”

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