Stock Investment

Mining Sector Giant

Photo by Matthew de Livera on Unsplash

Hello everyone,

On this edition we are discussing the recent investment on a company operating at the mining sector.

This company has nearby a 50 billion market cap, with a high operational cashflow, price to book ratio just over 1 and debt/equity ratio around 40%. The company has generous dividend distributions to its shareholders with a 15% dividend yield.

Companies in the mining sector tend to have cyclical nature and are sensitive to global changes of market prices of raw materials and political guidelines and directions. However, the cyclical nature of the mining sector is slow and far less volatile when compared to the cyclical nature of the shipping and container sector.

Introduction

Vale S.A. is a Brasilian based and founded company, listed at New York Stock Exchange [”VALE”].

VALE together with its subsidiaries, produces and sells iron ore, iron ore pellets, nickel, and copper in Brazil and internationally. The company operates through Iron Solutions and Energy Transition Materials segments. The Iron Solutions segment produces and extracts iron ore and pellets, and other ferrous products; and provides related logistic services. The Energy Transition Materials segment produces and extracts nickel; and its by-products, such as gold, silver, cobalt, precious metals, and others, as well as copper used in the construction sector to produce pipes and electrical wires.¹

Photo by Dominik Vanyi on Unsplash

VALE has few strong elements, and the first one could be described as a Moat.

• Sector cost of entry

Similar to railroads, the entry of cost for new operators is massive, as entering the market requires substansive investments, land, and minimi licenses.

VALE, Rio Tinto and BHP Group Limited are the most recognised and known stock exchange listed companies for global iron ore, pellet, copper and nickel mining operations.

• Financial status

VALE has a strong financial position with years of experience, predictable cashflow, low-to-medium amount of debt.

• Management

VALE has an experienced company management with a good track record.

VALE is sensitive also to many risks and/or events, as all companies are, but the main risks in out opinion are as follows (excluding internal and/or management risks):

• Political risks and nation movement

In Brazil may occur slightly more political risks or politically influenced movement than in some other countries, especially because there is a large population. However, huge companies like VALE are well known and are able to navigate through such risks.

• Revenue may affect from market price changes

VALE’s revenue may take hit from changes on Brazian Real / USD currency ratios and from changes on global demand for its products and services.

However, VALE has a company listing on NYSE and a large portion of global sales are made with US dollars. These things mediate and lower the risks of forex-related risks.

The Investment

Our portfolio acquired 200 shares of VALE for a share price of 11.2. This adds up the annual dividend income with a expected average of 300 USD in line with the latest dividend yield of 15%. However, the dividend amounts may change and are not published yet and because of this the above disclosure of ”expected average” were mentioned.

That’s a wrap!

Thank you for being here!

1. https://finance.yahoo.com/quote/VALE/profile/