The Rising Influence of Rising Affluence

[DewDiligence]

VALE Reports 2Q11 Results

[VALE was down 1.4% on Friday, following the report of record 2Q11 earnings Thursday night, and it was down 2.8% for the week. Given the condition of the broad stock market, this can perhaps be considered a respectable performance. VALE’s outlook for the rest of 2011 is quite bullish—see #msg-65731503.

The following VALE documents re 2Q11 results are available: financial report according to US GAAP (http://www.vale.com/en-US/investidores/press-releases/Pages/forcar-download.aspx?DownloadArquivo=276&Caminho=/investidores/press-releases and http://www.sec.gov/Archives/edgar/data/917851/000110465911041600/a11-21212_16k.htm ); mining production report (http://www.vale.com/en-US/investidores/press-releases/Pages/forcar-download.aspx?DownloadArquivo=273&Caminho=/investidores/press-releases ).

I’ve posted ad nauseam about why VALE deserves to be a core holding in a portfolio to capitalize on The Global Demographic Tailwind, so I won’t repeat that discussion here. In addition to having a very low P/E ratio, VALE has a current dividend yield of 4.6% (#msg-65731521).]

http://www.reuters.com/article/2011/07/29/vale-idUSN1E76S0X420110729

›Fri Jul 29, 2011 1:46pm EDT

SAO PAULO, July 29 (Reuters) - Shares of Vale, the world's second largest mining company by market value, fell on Friday after its second-quarter profit missed estimates as the company's sale prices for iron ore rose less than expected.

Despite reporting a hefty 74 percent surge in net income to $6.45 billion from a year earlier, investors cited rising wage and operating costs resulting from a drop in the U.S. dollar as a concern for the coming quarters. Vale was expected to earn $7.53 billion in the quarter, according to a Reuters poll of five analysts.

Reflecting a trend throughout the industry, Vale said the cost of goods sold jumped 39 percent to $5.72 billion from the year earlier, and said it had to raise capex budgets for three of its projects due to delays and rising costs.

Vale Chief Executive Murilo Ferreira said during a conference call with analysts that the company is maintaining its ambitious investment targets even though in the first half of the year it executed only around a quarter of the budget.

"Regarding capex, the 2011 investment plan remains the same. We know that we are very far from our target but we believe we should be able to spend the $24 billion," Ferreira said during a conference call.

Ferreira, who took the helm of the company in May, added that the company is performing a risk analysis of all its major projects "to double check the status and budget" of each one -- suggesting changes may be on the way.

The company raised its estimated outlays for the Salobo copper mine, the Onca Puma nickel mine, and the Estreito hydroelectric power project, reflecting a steady rise in project budgets for mining companies around the world.

"We believe there is room for further disappointment in the quarters ahead, although cost inflation seems to be moderating," Edmo Chagas, a senior mining analyst with BTG Pactual in Rio de Janeiro, wrote in a note to clients.

Earnings before interest, debt, depreciation and amortization, a gauge of operational profits known as EBITDA, of $9.07 billion also missed analysts' estimates of $10.33 billion in the second quarter. EBITDA fell short of those projections because of lower shipments, non-recurrent issues on ferrous and nonferrous production, and higher operating expenses, according to Goldman Sachs Group analyst Marcelo Aguiar.

Limiting declines in the stock was the company's offering of a one-time dividend worth $3 billion [#msg-65731521], analysts said. The company will likely end up distributing about $8 billion in dividends to shareholders this year, BB Investimentos analyst Victor Penna said in a report.‹