Replies to post #2654 on The Rising Influence of Rising Affluence

[DewDiligence]

Supplementary references for VALE’s 1Q11 results

CC slides:
http://www.vale.com/en-US/investidores/web-casts/Pages/forcar-download.aspx?DownloadArquivo=37&Caminho=/investidores/web-casts

VALE’s own PR on 1Q11 results:
http://sec.gov/Archives/edgar/data/917851/000095012311046180/c16728e6vk.htm

1Q11 production report:
http://sec.gov/Archives/edgar/data/917851/000095012311046188/c16729e6vk.htm

1Q11 detailed financial statements (US GAAP):
http://sec.gov/Archives/edgar/data/917851/000095012311045950/y90938e6vk.htm

1Q11 detailed financial statements (Brazilian GAAP—translated from Portuguese):
http://sec.gov/Archives/edgar/data/917851/000095012311045942/h05051e6vk.htm

[DewDiligence]

More on VALE’s expectations for a continued tailwind:

http://blogs.forbes.com/kenrapoza/2011/05/06/vales-record-profits-due-to-this

Brazilian mining company Vale said in its first quarter earnings report that China demand for iron ore will continue despite the government trying to force the economy into third gear, rather than China’s fifth gear norm.

“We are expecting an increase in industrial investment and civil construction in the interior regions of China,” Vale said in its earnings report. “Even though there is a slowdown in the construction in residential real estate…the government program to build homes for low income buyers should maintain high demand for steel, iron ore and other metals.”

[DewDiligence]

‘Quiet’ Negotiator, Ferreira Takes Reins at VALE

[Mostly a fluff piece, but there is some color on the new CEO. The more relevant point for readers of this board is that the machinations concerning the change in management have caused the stock’s valuation to reach a ridiculously low level.]

http://www.bloomberg.com/news/2011-05-22/-quiet-ferreira-takes-control-at-vale-as-conflict-hurts-stock.html

›By Juan Pablo Spinetto - May 22, 2011

After Murilo Ferreira helped Vale SA (VALE5) win a takeover battle for Canadian miner Inco Ltd. in 2006, his boss, Chief Executive Officer Roger Agnelli, promoted him to head the unit and build a global nickel business from Toronto.

Nickel output rose to a record by 2008, in part because Ferreira boosted relations with local unions and took a consensus-building approach that impressed fellow executives and labor representatives such as United Steelworkers Union leader Leo Gerard. Those attributes have now helped him win the top job at Rio de Janeiro-based Vale, after Brazil’s government ousted Agnelli in a dispute over its strategy and investments.

“What struck me a lot is that he’s a very balanced and quiet person,” Arthur Vasconcellos, the executive at headhunter firm CTPartners that interviewed Ferreira for the Vale CEO selection process, said in a telephone interview on May 10. “He has a very international vision, knows the mining and steelmaking business deeply and has a very strategic mindset.”

Ferreira, 57, is taking over as CEO amid investor concern that Vale, the world’s largest producer of iron ore, will yield to pressure from Brazilian President Dilma Rousseff to spend more on projects that boost the value of exports, such as steelmaking, where returns can be half those of iron ore.

Vale slumped to an eight-month low in Sao Paulo trading on May 16. It’s currently trading at 5.49 times estimated earnings for this year, compared with 11.32 times for BHP Billiton Ltd. and 6.75 times for Rio Tinto Group, according to Bloomberg data. Its dollar bonds due in 2020 yielded 1.26 percentage points more than similar-maturity securities from Melbourne-based BHP on May 10, the most since Vale sold the securities in September.

Net income rose to a record $6.83 billion in the first quarter, helped by a 95 percent increase in the price of iron ore sold and a one-time gain from the sale of assets [#msg-62877175].

The stock is an “unusual buy opportunity” as it has a “very strong” earnings outlook and is “unlikely” to suffer a sharp drop in iron-ore prices, Goldman Sachs Group Inc. analysts led by Marcelo Aguiar in Sao Paulo said in a May 19 report.

While Agnelli oversaw more than $84 billion in investments and acquisitions and distributed $17 billion in dividends, he clashed with the government over demands he spend more on steelmaking and fired too many local workers when Latin America’s largest economy entered recession in 2009 for the first time in six years.

Agnelli also faced criticism from former president Luiz Inacio Lula da Silva for buying ships in China when Brazil was setting up its own yards. The disputes ended his decade-long tenure as Vale head when Ferreira officially took over May 22.

Improve Relations

The choice of Ferreira is likely to improve relations with politicians in Brasilia, which may be positive for the stock, according to analysts such as Rene Kleyweg at UBS AG in London. [Well, maybe.]

“The reason he is there is because he would be able to ensure a more constructive working relationship with the government,” he said in a telephone interview. “That means a more professional approach in terms of how, if any conflicts do arise, they would be handled in a more professional fashion.”

In his first public comments since his nomination as CEO, Ferreira said May 20 that the company will “continue working under the same parameters that allowed it to succeed in the past few years.” The company will maintain the same strategic plans and budgeted spending of $24 billion this year, he said.

Ferreira declined to comment when contacted by Bloomberg News.

Less than two years into the job at Inco, Ferreira quit the company as slumping commodity prices and the CEO’s management style strained relations, according to two people familiar with the situation. The men clashed when Ferreira wanted time for voluntary redundancies, while Agnelli wanted to fire workers.

‘Different Cultures’

Ferreira “felt first-hand the very different cultures that Vale has to learn if they are to be successful in their overseas developments,” Mark Cutifani, a former chief operating officer of Vale Inco and now CEO of AngloGold Ashanti Ltd. (ANG), wrote in e- mailed comments to Bloomberg News. “He’s a gentleman and probably learnt a lot from his experience with Inco.”

About six months after Ferreira left the company, approximately 3,000 employees represented by the steelworkers at Vale’s nickel operations in Sudbury and Port Colborne in Canada went on strike to protest pay and conditions. The industrial dispute lasted more than a year before ending in July 2010.

Production of the metal used to prevent corrosion in stainless steel fell to zero in the first quarter of 2010 from 22,400 metric tons a year earlier at Sudbury because of the strike, according to Vale production reports.

‘Cultural Shift’

“There was a complete cultural shift when Murilo’s successor appeared and it became very authoritarian,” union leader Gerard said. “When our folks met Mr Ferreira they were impressed with him as someone who was honorable, had an open mind and interested in discussing how we can work together.”

Ferreira returns to the company he started with as an analyst in 1977. Until February, he worked at Studio Investimentos, an investment fund set up with partners including former Vale Chief Financial Officer Gabriel Stoliar in a French- style house in Rio’s beachside neighborhood of Leblon. Its Studio Master FIA (STUMAST) fund returned about 33 percent during 2010 and is down 0.2 percent this year, according to Bloomberg data.

Even after leaving in 2008, Ferreira continued to watch the company closely: the fund’s main holding as of Jan. 31 was Vale. It also held shares of Petroleo Brasileiro SA and Santos Brasil Participacoes SA (STBP11), Brazil’s biggest port by value shipped.

“Murilo will carry on with Vale’s internationalization and diversification processes, enlarging the company’s presence in non-iron ore markets such as coal, copper, zinc and fertilizers,” says Jorio Dauster, who headed Vale between 1999 and 2001. “He impressed me by his easy way with colleagues and workers, as well as his preference for team work,” he said.

Birthplace

Ferreira was born in the town of Uberaba, 475 kilometers (295 miles) west of Belo Horizonte, capital of the southeastern state of Minas Gerais, which is also the birthplace of President Rousseff. He earned two graduate and post-graduate degrees in business administration from the Getulio Vargas Foundation in Sao Paulo and in Rio de Janeiro.

Prior to becoming the head of Inco and the company’s executive director of nickel and base metals sales, he was director of the company’s aluminum business.

“I leave in peace with a sense of mission accomplished,” Agnelli told reporters May 20. “Murilo was among my right-hand men at Vale. He did brilliant work in the aluminum area, a fantastic job,” he said in Rio de Janeiro.

A fan of Fluminense, Brazil’s current soccer champions, Ferreira lives in Leblon with his wife and a teenager daughter. As a practicing catholic, he goes to Church regularly.

‘Serious Guy’

“He is a very serious guy,” said Diego Hernandez, Chief Executive Officer of Codelco, the world’s largest copper producer, who was an executive director for Vale’s non-ferrous division between 2001 and 2004. “He as a Brazilian went to Canada Inco. That was a tough challenge.”

Brazil pension funds Funcef, Previ, Petros and Funcesp, all linked to state-run institutions, hold 49 percent of Valepar SA, the company that controls Vale with about 53.5 percent of its ordinary shares. BNDESPAR, a subsidiary of the Brazilian state- owned development bank, holds 11.5 percent of the controller and also has a 6.7 percent direct stake in Vale’s common shares. [See the pie chart in #msg-61404125.]

“The shareholders decided to make changes in the direction of the company and I wanted to go along with them. Now it’s business as usual. I don’t see any anomaly,” Brazil’s Finance Minister Guido Mantega said May 3 in a Senate hearing, adding that Agnelli ignored the government’s criticism over job cuts and requests to invest more in steel to boost exports.

Six Candidates

Ferreira was one of six candidates that CTPartners’ Vasconcellos drew up after a request from Vale Chairman Ricardo Flores on March 31, he said in a telephone interview from Sao Paulo. Contenders would have to be present or former executive directors of the company, according to a requirement set by Vale’s controlling shareholder Valepar, reducing the number of candidates and speeding up the process, he said.

“They were looking for a substitute of Roger that would give continuity,” said Vasconcellos, a former executive at Alcoa Inc. (AA) and steelmaker Cia. Siderurgica Nacional SA.

“Murilo is a business thinker, a very good strategist, a tireless negotiator,” Vasconcellos said. “He seems quiet but he is always advancing in the negotiations,” he said.‹

[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.‹