Before the market closed on Friday, Vale do Rio Doce (VALE), one of the largest producers and exporters of iron ore and pellets in the world, backed the Tujuh Bukit copper-gold project in east Java, Indonesia. The company had previously decided to invest $40 million to acquire a 60% stake in the project.
According to the project manager Australia-listed Intrepid Mines Ltd, VALE was given an option to acquire stake in the Tujuh Bukit sulphide copper project in east Java. Tujuh Bukit is supposed to have a large gold-silver-copper system beneath a near-surface gold-silver oxide cap.
Vale is making all attempts to cut costs, a necessary step in the wake of the economic crisis. The company has been implementing production cutbacks, primarily shutdowns of higher-cost operational units, reducing workforce costs through negotiations with unions seeking more flexible contracts, etc.
The economic crisis raised huge doubts on cyclical industries like mining. Nevertheless there are some reasons for hope. In the medium-term, global economic growth will be concentrated in the emerging markets, which are more resource intensive.
We expect the Chinese economy to moderate its current growth from an average of over 10% per year to something closer to 6% per year. Based on the rapid Chinese urbanization, the medium-term outlook for metals is likely to remain encouraging.
However, the short-term outlook is extremely uncertain as a result of shrinking demand following the widespread crisis across the world. We maintain our Hold rating on VALE as it is the largest diversified mining company in the Americas and one of the largest companies in Latin America with respect to market capitalization.