On Mar 11, we reaffirmed our Neutral recommendation on the mining giant, Vale S.A. (VALE), since we are optimistic about the company’s cost saving initiatives despite the weak results.
Why the Neutral Stance?
Though Vale’s fourth-quarter results (announced on Feb 27) missed both the Zacks Consensus Estimate and the prior quarter’s earnings, its earnings for full year 2012 beat the Zacks Consensus Estimate. A weak global economy coupled with low prices for most of its products severely impacted revenue.
Revenue was also hurt by a lower production of pellets, ferroalloys, manganese ore, nickel, copper, potash and nitrogen, which offset the increase in production of iron-ore, coal and phosphates.
Over the last 30 days, only a few of the estimates have been revised upwards for 2013 and 2014, showing optimism about the cost saving measures undertaken by Vale. However, there still seems to be skepticism relating to the recent results. The revision has led to an increase of 3.1% to $2.31 per share in the Zacks Consensus Estimate for 2013. However, the estimate has gone down by 1.8% to $2.73 per share. Vale currently holds a Zacks Rank #3 (Hold).
However, Vale’s continuous efforts to curtail costs are paying off well. It has been divesting its non-profitable and low margin assets and has plans to continue to do so in the near future. The company has been taking steps like CORe project in Sudbury, leading to lower operational costs and using hydrometallurgical flowsheet, which enhances efficiency and reduces wastage and costs.
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