Vale Updates: Ethiopia Investments, China Ties Support $34 Value

January 12th, 2012 by Trefis Team
+27.79%
Upside
11.48
Market
14.67
Trefis
VALE: Vale logo
VALE
Vale

Vale (NYSE:VALE) has been successful in attaining an exploration license from the Ministry of Mines in Ethiopia. The exploration area under consideration is a 350 square mile concession in the Konso region, Ethiopia. Vale will carry out exploration and feasibility studies for precious metals like gold and other commercial metals like iron ore. [1] Vale is the world’s largest iron-ore mining company and receives 18 percent of its value from the nickel business. It competes internationally with other mining giants like Rio Tinto (NYSE:RIO) and BHP Billiton (NYSE:BHP).

We have revised our price estimate for Vale from $34 to $31, which is still about 40% ahead of the market price.

See our complete analysis for Vale here

Relevant Articles
  1. Forecast Of The Day: Vale’s Average Realized Iron Ore Price Per Ton
  2. Is Vale Stock A Buy As Iron Ore Prices Rise?
  3. What’s Happening With Vale Stock?
  4. Trading At A Mere 4x Earnings, Is VALE Stock A Buy?
  5. Why Did VALE Stock Decline Sharply In Recent Weeks?
  6. Company Of The Day: Vale

Exploration in Ethiopia

Vale’s investment in Ethiopia signals the strengthening trade relations between Ethiopia and Brazil. As per the company’s budget, it will invest $21.4 billion in 2012 globally, out of which close to $12 billion will be used to fund the development of new projects. The current exploration license provides an healthy potential upside to Vale’s gold mining operations.

China Allows ValeMax ships to dock ((China allows huge Valemax ship to dock, Financial Times))

In a positive move for Vale, China has allowed it to dock its huge ValeMax ships on Chinese ports. ValeMax ships carry approximately 400,000 ded weight tons of shipment, making them the largest dry bulk carriers ever.

Vale built these primarily to compete with Rio Tinto and BHP Billiton’s shipments from Australia. It takes around 10 days to ship the produce from Australia to China and approximately 45 days from Brazil. Moreover, per ton shipment cost in via a ValeMax ship is $4-$5 cheaper than the conventional ships. So, in a single shipment, Vale can potentially save about $2 million. Chinese authorities had earlier opposed Vale’s move because it would have taken the control out of the Chinese shipping companies’ hands. Vale has plans to build 35 ValeMax ships, 19 of which will be owned directly by the company.

Submit a Post at Trefis Powered by Data and Interactive Charts | Understand What Drives a Stock at Trefis

Notes:
  1. Vale Enters Mining Sector in Ethiopia, 2Merkato.com [↩]