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Vale (VALE) to Sell Stake in California Steel Industries for $400M

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Vale S.A VALE recently announced that its subsidiary Vale Canada Limited has entered into an agreement with Nucor Corporation NUE, per which it will indirectly sell its 50% ownership interest in California Steel Industries. The transaction reinforces Vale’s capital discipline, and is in sync with its strategy to focus on its core businesses and strive toward a leaner portfolio. On completion of the deal, Vale will receive $400 million in cash for the 50% of the enterprise value, adjusted for net debt and working capital.

The transaction is anticipated to close in the first quarter of next year. This is, however, subject to the clearance of conditions required to be met for this sort of transaction.

Vale became a shareholder in California Steel Industries in 1984 and currently holds a 50% stake in the latter. The balance 50% is owned by JFE Steel Corporation. California Steel Industries is a producer of flat-rolled steel and pipe that operates a facility in Fontana, CA. The company has five product lines, including hot rolled, pickled and oiled, cold-rolled, galvanized and ERW pipe. It has an annual production capacity of around 2.5 million metric tons. Key end-use segments served by CSI include customers in the construction, service center and energy industries.

Nucor will also acquire a 1% equity stake from JFE Steel Corporation, which would take its total holding to a 51% stake in California Steel Industries. Acquiring this majority ownership stake in California Steel Industries will expand NUE’s geographic reach in sheet steel while strengthening its presence on the West Coast. It will be the company’s second joint venture with JFE. Since 2020, the two companies have been operating an automotive steel joint venture in Mexico.

Vale recently trimmed the guidance range for iron ore production in 2021 to 315-320 million tons (Mt) from the prior expectation of 315-335 Mt. The company had produced 300.4 Mt of iron ore in 2020. For 2022, the company anticipates iron ore production between 320 Mt and 335 Mt. Vale at its investors meeting announced that it expects to end this year with a production capacity of 341 Mt and attain 370 Mt by the end of next year. The company stated that it will conform to its “value over volume” approach that will continue to define its production and sales strategy. In the medium term, the company has set a target to achieve an annual production capacity of 400 Mt.

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Shares of Vale have fallen 17.9% so far this year compared with the industry’s decline of 18.0%.

This is primarily due to the plunge in iron ore prices because of the intensified curbs on steel production in China that impacted demand for iron ore. However, iron ore prices have recently picked up on supply constraints and prospects of improving demand in China. China’s steel mills are anticipated to increase production as some companies completed crude steel output reduction targets. China’s property sector is showing signs of improvement. This is likely to support iron ore prices, which bodes well for Vale.

Zacks Rank & Stocks to Consider

Vale currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the basic materials space are Olin Corporation OLN and Bunge Limited BG, both of which flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Olin’s third-quarter 2021 adjusted earnings beat the Zacks Consensus Estimate, while revenues missed the same. It has an expected earnings growth rate of around 740% for the current fiscal year. The Zacks Consensus Estimate for current-year earnings has been revised upward by 20.5% in the past 60 days.

Olin’s shares have surged a whopping 229% in the past year. The company has a long-term earnings growth of 56%.

Bunge’s third-quarter 2021 earnings and sales beat the respective Zacks Consensus Estimate. It has a trailing four-quarter earnings surprise of 105.7%, on average. The company has an estimated earnings growth rate of around 45% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 36%.

Bunge’s shares have appreciated 60% in the past year. It has a long-term earnings growth of 6.7%.


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VALE S.A. (VALE) : Free Stock Analysis Report

Nucor Corporation (NUE) : Free Stock Analysis Report

Bunge Limited (BG) : Free Stock Analysis Report

Olin Corporation (OLN) : Free Stock Analysis Report

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