Vale (VALE:NYSE) released its first-quarter production report Wednesday night. Numbers were in line with expectations, with a different mix toward more non-iron ore output, and the company reiterated its total production growth. This should lead to a relief rally Thursday.
We've continue to hold Vale despite how tough it is to own commodities at this juncture. We like what Vale management is specifically doing -- streamlining its overall operations and focusing on fewer but more profitable projects that will lead to a stronger company, a better balance sheet and higher net asset value.
Yes, the volatility is likely to continue, mainly due to the tax treatment in Brazil and global macroeconomic uncertainty. But we see a stock that trades at a 27% discount to its historical average multiple and at a 30% discount to its peer group. The stock is currently priced at 4.9x earnings before interest, taxes, depreciation and amortization, and it has a dividend yield of 5.2%. Given the aggressive project changes and allocations, its balance sheet is stronger and supportive of its current payout ratio. We'll stay patient on the name, especially as sentiment remains negative -- because we see real value here, and company-specific factors stand to drive a higher stock price over time. In the report, iron ore production was in line with soft expectations, offset by surprisingly stronger results in base metals and coal output. This is important, because one of the key initiatives at Vale has been to unlock value beyond its iron ore segment -- so we've seen clear progress on this front. Going forward, the VNC and Salobo project progress suggest lower operating costs ahead of the revenue ramp. This should also be viewed positively, as start-up expenses on both cost the company $300 million in the fourth quarter.
It's also important to note that the company maintained its 2013 iron ore output guide of 306 metric tons. In addition, it has reiterated that one of its l