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October 30, 2009 The war for raw materials seemed to have overshadowed the face of financial meltdown that originated in the United States. A war in which all pointed to China as a major global resource consuming and demanding that everyone is looking to sell. But China does not expect to sell him, preferring to go shopping. This global financial economic crisis has been of compliments because, while positioning was already in places like Africa, with China National Petroleum Corporation (CNPC) as the majority partner of the Greater Nile Petroleum Operating Company (GNPOC) in Sudan, and Brazil, setting up alliances with local companies such as Petrobras (NYSE: PBR), with funding for projects in exchange for crude oil, or Venezuela and Petroleos de Venezuela (PDVSA) and PetroChina as strategic partners in building refineries, has been able to buy international assets very low prices. China is rearming. And in that rearmament is this company that I want to speak today.
It is the world’s largest producer and exporter of iron, the second largest mining company after BHP Billiton (NYSE: BHP). And diversified metals producer in the world, the largest open from Latin America, with a market capitalization of U.S. $ 139,000 million.
Have you guessed? Other help: together with Petrobras, is the most admired company in Brazil. Yes, Vale SA (NYSE: VALE3), which together with the oil form the most weight in the Bovespa index. When It was cold, the Bovespa sneezes.
It sells to China, who is second largest trading partner the United States, the world’s economic locomotive. Is not it a perfect match?
It is a holding company and diversified geography: is based in Brazil, but has a presence on five continents, with mining projects in 23 countries, making it immune to the fluctuations that may arise in a particular economy or other, but not immune to the vagaries and widespread as the current standard.
The company produces and sells iron ore (world’s largest producer and exporter), nickel (one of the largest producers), pellets of iron, copper, coal, alumina, potassium, manganese, bauxite, aluminum, coal, cobalt, palladium, methanol , uranium, precious metals like platinum, silver, gold, diamond, plus steel and other nonferrous minerals, among others.
Iron, aluminum, copper and manganese are the four most common mineral worldwide. And the four are produced by Vale.
Its output is used for the manufacture of products we use daily such as vehicles, refrigerators, aircraft, mobile networks, transmission lines of electricity, needles, stainless steel, turbines for power generation, industrial valves, systems for rechargeable batteries , furnace components, televisions, electronic components, production of equipment for food processing, pharmaceutical, beverage, pressed CDs and DVDs, cooking pots, batteries, beverage cans, cell phones, appliances, construction and even in civil vitamins that many people eat every day.
Its foreign currency corporate credit has been rated “investment grade” Baa2 by Moody’s, BBB + by Standard & Poor’s and BBB-by Fitch.
Chinese demand for minerals and metals has been expanding since the last quarter of 2008. Asia’s share in the Vale sales increased from 43.2% in the last quarter of 2008 to 56.4% in the third quarter of 2009.
With regard to country allocation, its main market is China, with 37% of sales followed by Brazil with 15.5%, Japan 9.8% South Korea 3.8% and United States 3.7%. This position in worldwide sales geography is what makes it so sensitive to the Asian recovery, with the help of China mainly. The Vale iron ore price and quality is better than Chinese, and so is used there.
And China had an annualized growth of 10% of world GDP in the third quarter.
The robust performance of domestic demand was the main reason for the Chinese expansion, explained by the acceleration of investment in physical assets and the growth of consumer spending. And one of the main characteristics of China’s recent performance is the increase in construction-residential and commercial, after the sharp fall last year (the construction is responsible for 40% of steel sales in the country). This generated a strong demand for steel production, which was supported by investment from the government in infrastructure and the production car record. Chinese iron ore is of low quality and high cost, which explains the volume of imports of mineral, achieving in the first nine months of the year, the 633 million metric tons, an increase of 33% versus the same period last year.
The World Steel Organization estimates that steel demand will grow by 9.2% in 2010, returning to pre-crisis level of 1200 million metric tons.
Although the company posted a net profit of U.S. $ 1,711 million in the third quarter of this year (61.3% less than the same period in 2008), doubled second-quarter profits in 2009, is increasing evidence that production of the hand of the global recovery.
Shipments of iron ore and pellets, its core business, were 75 million metric tons, an increase of 35.9% over the previous quarter, global recession is coming to an end at a pace faster than expected the company announced.
He said that growth resumed after the impacts of global financial shock.
It is mining that provides more return to its shareholders, according to Bloomberg data. During the period 2003-2008, the company posted 34.9% in TSR (Total Shareholder Return, the return is received by the investment price increase plus dividends), followed by BHP Billiton (NYSE: BHP) with 27 %, Anglo American (NASDAQ: AAUK) to 12.1%, 8.8% Xstrata and Rio Tinto (NYSE: RTP) with 4.9%.
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The world will return to strong commodity demand, and the time to buy companies that produce them is neither more nor less than in times like these, when solid companies that have been growing potential of the hand of the strong global activity is retract and correct, waiting for the new wave of activity.
Since July, Vale is part of the portfolio of our Global Value report, which recommends actions with strong upside potential on Wall Street. At that time alert?bamos that the company had a strong upside potential in both the fundamentals and in its technical-graphics. And we hoped to double its value in six months, at the time was worth $ 16.98 in New York. Yesterday it closed at $ 26.68, a 57% increase in 4 months. And we remain in the portfolio.
