Brazilian miner Vale S.A. (VALE) proposed to pay an extraordinary dividend of $1.0 billion or $0.19 per share with the record date of January 14, 2011. The holders of ADRs and Hong Kong Depositary Receipts (HDRs) will have the record dates as of January 19, 2011. However, the decision is pending for approval on January 14, 2011.
In the fourth quarter of fiscal 2010, Vale authorized the buy-back of 64.8 million common shares and 98.4 million preferred shares for a total amount of $2 billion until March 2011. The company also proposed a total dividend of $2.75 billion with $1.25 billion as minimum payment, and $500 million as additional dividend. Through these initiatives, Vale is trying to raise shareholders’ wealth and confidence toward the stock.
Currently, Vale is on a spending binge with a capital investment budget of $24 billion for fiscal 2011, more than double of $10.7 billion invested in the year ended September 30, 2010.
The increased investment is expected to support 15 new approved projects, projects in queue and existing operations. Vale will focus more on organic growth, and therefore, 81.3% of the total budget will be spent on Research & Development (R&D) as well as Greenfield and Brownfield projects. Vale is also going to emphasize on rail and port expansion, coupled with an increase in coal production.
The increase in production will be supported by the recent improvement in market demand. During the third quarter of fiscal 2010, net earnings increased to $6,038 million from $1,677 million in the corresponding quarter of fiscal 2009 and $3,705 million during the previous quarter, due to the increase in demand for minerals and metals based on the global economic recovery.
Demand for iron ore is usually related to the worldwide demand for steel, which is also expected to surge by 5.3% in 2011. China, the biggest iron ore importer in the world, is expected to increase its steel consumption by 3.5% in 2011 and is anticipated to remain the largest consumer of metals in the coming years.
Hence, the medium-term outlook for metal commodities remains encouraging and is anticipated to have a positive impact on iron-ore companies like Vale S.A., Rio Tinto plc. (RIO) and BHP Billiton Ltd. (BHP).
We believe that Vale’s risk/reward profile is balanced and we see limited upside from the current level. We remain Neutral on the ADS. In the shorter term, Vale currently retains its “Hold” rating, which equates to a Zacks #3 Rank.
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