Vale S.A. ( “>VALE ) , along with Chinese steelmaker Anyang Steel, intends to start production under their joint iron ore project in China by the end of March, 2011. Vale has a 25% stake in the project.
Anyang Iron & Steel manufactures a wide array of iron and steel products from its facilities in the Henan province of China.
Earlier, Vale had started production at Onça Puma, a nickel operation (mine and processing plant). The plant has a capacity of 53,000 tons per year of nickel contained in ferro-nickel, its final product.
The total investment is estimated at US$ 2.841 billion.
Management expects to deliver 33 major projects from 2011 to 2015.
In the month of February, Vale completed the transfer of its stake in its wholly owned subsidiaries toNorsk Hydro ASA (Hydro) for 22% of Hydro’s shares and US$ 503 million in cash.
Vale transferred to Hydro 51% of the total capital of Albras – Alumínio Brasileiro S.A. (Albras), 57% of the total capital of Alunorte – Alumina do Norte do Brasil S.A. (Alunorte), 61% of the total capital of Companhia de Alumina do Pará (CAP). The company will also transfer its off-take rights and outstanding commercial contracts and debt of US$ 655 million.
Additionally, Vale transferred 60% of its stake in Mineração Paragominas S.A (Paragominas) to Hydro for US$ 578 million. The balance 40% will be transferred in two equal shares of 20%, for US$ 200 million each.
According to the agreement, Vale will not be able to sell its stake in Hydro for two years. The company has a right to appoint one representative on Hydro’s Board of Directors.
We believe that the stock has a significant long-term upside potential due to the company’s position as a low cost metal producer and the improvement in economic conditions. Vale’s huge capital budget of $24 billion in fiscal 2011 supports numerous strategic acquisitions, which are likely to be beneficial in the long run.
Based on rising iron ore demand in China and the expectations of higher iron ore price in fiscal 2011, we provide an Outperform rating. The stock also currently retains its short-term Stong Buy rating (Zacks #1 Rank).
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