The sale of such coal assets is a consequence of Vale’s shifted focus from electricity-generating thermal coal mining to coking coal operations for steel mill usage. With this strategy in mind, Vale planned to sell 100% of its coal mines - El Hatillo and Cerro Largo in the department of Cesar, as well as its port terminal Sociedad Portuaria Rio Córdoba on the Caribbean coast. The company announced such plan under an agreement a month ago.
Further, the company also intended to sell the mines of Ferrocarriles Del Norte de Colombia, in which Vale had 8.43% stake. Currently, Ferrocarriles Del Norte de Colombia operates the railway between the mines and the terminal and Colombian Natural Resources owns a stake in the railway and mines.
Rio de Janeiro-based Vale’s strategy of such divestment looks favorable. We believe these strategies will not only generate additional cash flow, but also reduce operational cost. Moreover, Vale’s plan to diversify into the areas of coking coal will help the company to keep up with the steel mill demands on the back of infrastructural development.
In a separate story, Vale has been reported to prepare for building the world’s largest single processing plant for palm oil by 2015. This seems an effort to cut the company’s vast fuel costs. The company has cleared an area in the rainforest to grow palm oil for conversion to biodiesel to run the company’s machinery, ships, trains and trucks. Such project effort is also expected to develop the struggling Amazon region at the same time. We believe such an investment will promise a better future for Vale’s organic growth pipeline.
Vale S.A. is one of the world’s largest producers and exporters of iron ore and pellets. The company keeps improvising its competitiveness against rival companies, such as Rio Tinto plc (RIO) and BHP Billiton Ltd (BHP).
Vale holds a Zacks #3 Rank, which translates into a short-term (1-3 months) 'Hold' rating.Read the Full Research Report on VALE
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