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Vale – sell / 9/13/12

Vale – sell / 9/13/12. Mark Blazo , Portfolio Manager. Pitch Overview. Sell 36.591 shares @ $ 18.99 each $694.86. Vale. Exploration, production, and sale of basic metals in Brazil and internationally Larget producer of iron ore in the world

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Vale – sell / 9/13/12

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  1. Vale – sell / 9/13/12 Mark Blazo, Portfolio Manager

  2. Pitch Overview • Sell 36.591 shares @ $18.99 each • $694.86

  3. Vale • Exploration, production, and sale of basic metals in Brazil and internationally • Larget producer of iron ore in the world • Involved in fertilizers, logistics, and steel businesses • Majority of revenue from selling iron ore and nickel

  4. Iron Ore Imports • China 34% • Japan 23% • Germany 7.5% • Rest of World 35.5%

  5. Iron Ore Prices • Iron ore prices down 37% this year • Steepest drop among industrial commodities due to China’s slowdown

  6. Chinese Steel Profits • Chinese steel companies saw profits decline 49.4% from a year earlier to $6.64 billion

  7. Chinese Infrastructure Stimulus • ¼ size of failed 2008-2009 Chinese stimulus • Iron ore prices will remain low, hurting margins • Stimulus now priced in to stock after 6.75% jump • Do we want to be in a sector that requires stimulus to boost demand?

  8. Growth and Competition • Major competitor: BHP Billiton

  9. Competitors

  10. Strengths • Debt to Equity Ratio 0.34 • Low debt on the books • Quick Ratio 1.20 • High ratio allows Vale to meet short-term cash needs

  11. Weaknesses • Net Income -67% YoY • Weak operating cash flow • Decreasing stock price

  12. Opportunities • New infrastructure spending from Chinese government • Roads • Water ports • Airports

  13. Threats • Countries are continually being exposed for having financial problems • Spain • Italy • Greece

  14. Recent News • On September 5th, Vale recently postponed plans of a mining project in Canada. The mine would produce 1500 jobs and 2.9 million metric tons of potash. The reason for the cancellation of immediately starting the job is “because of decreased China demand and drought conditions in the United States. Potash is used in fertilizers and agricultural products and the agrarian industry isn’t doing well.” • The recent drought in the U.S. and lack of demand in China is causing action from Vale.

  15. Recent News • A report released on September 9th showed Japan’s economy (purchases 23% of world’s iron ore supply) slowing drastically from an estimated 1.4% growth to 0.7% • European debt crisis putting a cap on spending from businessesS • Data released on September 8thshows smallest rise in China’s industrial output in the last three years.

  16. Valuation • 52-week change -31.9% • S&P 52-week change 22.2% • Quarterly Revenue Growth -2.1% • Quarterly Earnings Growth -48.3% • Total Cash 4.2B Total Debt 27.3B • Debt-Equity 34% Current Ratio 2.24 • P/E 6.75

  17. Summary • Sell 36.591 shares @ $18.99 each • $694.86

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