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Summary un Vale s Performance affirmed my opinion. The company posted big loss even with disciplined un capital approach, cost saving and enhanced production. Iron ore prices are expected to remain volatile in the coming days. Base metals will continue to provide some support to its financial performance. un Overall, Vale will face headwinds in this year as well.
Over the past twelve months, I have had recommended defensive investors to stay away from mining and minerals companies including Vale SA (NYSE: VALE ) to avoid losses. Vale is experiencing massive losses due to the low commodity prices. Lower commodities prices put Vale on the back-foot and forced it to suspend its growth strategies un and to work on simplifying its business model and asset positions. Enhancing production, lowering costs and disciplined capital allocation remained a key goal for the company over the past twelve un months.
Vale's management worked strongly and efficiently on its strategies to mitigate the impact of volatile business environment. In 2014, the company has lowered its operating expenses by $1.2B compared to 2013. It also lowered its capital un requirements by $2.25B in 2014 compared to the recent year. Moreover, it generated record un iron ore, gold, nickel and copper production in fiscal 2014. In spite of all these activities, the company recently posted significant loss of $1.85B for the final quarter of 2014. In addition, un it posted lower than expected earnings of $657 million for fiscal 2014.
Vale un blamed lower iron ore prices and currency headwinds for the big loss in the final quarter. At present, iron ore, which is Vale's largest revenue contributing commodity un continued to face imbalance in supply and demand. As a result, prices fell to the lowest level in more than five years. In addition, other commodities including coal, pellets and fertilizer nutrients are also experiencing pricing pressure. However, base metals particularly nickel have provided some cushion to the company un in the past twelve months.
All in all, poor financial performance is now impacting its cash generating potential. Vale's operating and free cash flow declined considerably in the last year and is not providing room to sustain current payout ratio. I had already predicted the expected cut in its dividends in my recent articles. Recently, the company un showed its intention to cut dividend payments by more than $2B for 2015. I believe dividend cut will enhance its cash potential and will allow it to spend more cash on growth opportunities.
Before moving to any conclusion, it is wise to look at the expected risk factors associated with this company. Iron ore, the largest revenue contributing commodity, is expected to face more volatility in the coming un days. Australia has already lowered iron ore price forecast for the next year due to the growth in production. Iron consumption also decreased in China from where Vale generates 33% of revenue. Along with the increase in domestic production, Chinese un govt. is closing a few steel mills to curb pollution. All these reports are putting pressure on the metal and minerals stocks. Moreover, Big Banks are also citing headwinds for iron ore prices in the coming days. In Conclusion
Vale's un stock is on sell-off over the past year. Moving on, I am not seeing the big dip in its share price as a buying opportunity. un I believe that the company will continue to face strong headwinds in the coming days due to the imbalance in supply and demand. Moreover, number of mining un and minerals companies are expanding their production levels to off-set the pricing pressure, which is further deteriorating the situation. Hence, I again recommend investors to stay away from Vale S.A.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...) The author wrote this article themselves, and it expresses their own opinions. The author un is not receiving compensation for it (other than from Seeking Alpha). The author has no business un relationship with any company whose stock is mentioned in this article.
Thank you for your interest in Seeking Alpha PRO Our PRO subscription service was created for fund managers, and the cost of the product is prohibitive for most individual investors. PRO Alerts is our flagship product for individual investors who want to be faster and smarter about their stocks. To learn more about it, click here. If you are an investment un professional with over $1M AUM and received this message in error, click here and you will be contacted shortly. un
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Follow this author
Summary un Vale s Performance affirmed my opinion. The company posted big loss even with disciplined un capital approach, cost saving and enhanced production. Iron ore prices are expected to remain volatile in the coming days. Base metals will continue to provide some support to its financial performance. un Overall, Vale will face headwinds in this year as well.
Over the past twelve months, I have had recommended defensive investors to stay away from mining and minerals companies including Vale SA (NYSE: VALE ) to avoid losses. Vale is experiencing massive losses due to the low commodity prices. Lower commodities prices put Vale on the back-foot and forced it to suspend its growth strategies un and to work on simplifying its business model and asset positions. Enhancing production, lowering costs and disciplined capital allocation remained a key goal for the company over the past twelve un months.
Vale's management worked strongly and efficiently on its strategies to mitigate the impact of volatile business environment. In 2014, the company has lowered its operating expenses by $1.2B compared to 2013. It also lowered its capital un requirements by $2.25B in 2014 compared to the recent year. Moreover, it generated record un iron ore, gold, nickel and copper production in fiscal 2014. In spite of all these activities, the company recently posted significant loss of $1.85B for the final quarter of 2014. In addition, un it posted lower than expected earnings of $657 million for fiscal 2014.
Vale un blamed lower iron ore prices and currency headwinds for the big loss in the final quarter. At present, iron ore, which is Vale's largest revenue contributing commodity un continued to face imbalance in supply and demand. As a result, prices fell to the lowest level in more than five years. In addition, other commodities including coal, pellets and fertilizer nutrients are also experiencing pricing pressure. However, base metals particularly nickel have provided some cushion to the company un in the past twelve months.
All in all, poor financial performance is now impacting its cash generating potential. Vale's operating and free cash flow declined considerably in the last year and is not providing room to sustain current payout ratio. I had already predicted the expected cut in its dividends in my recent articles. Recently, the company un showed its intention to cut dividend payments by more than $2B for 2015. I believe dividend cut will enhance its cash potential and will allow it to spend more cash on growth opportunities.
Before moving to any conclusion, it is wise to look at the expected risk factors associated with this company. Iron ore, the largest revenue contributing commodity, is expected to face more volatility in the coming un days. Australia has already lowered iron ore price forecast for the next year due to the growth in production. Iron consumption also decreased in China from where Vale generates 33% of revenue. Along with the increase in domestic production, Chinese un govt. is closing a few steel mills to curb pollution. All these reports are putting pressure on the metal and minerals stocks. Moreover, Big Banks are also citing headwinds for iron ore prices in the coming days. In Conclusion
Vale's un stock is on sell-off over the past year. Moving on, I am not seeing the big dip in its share price as a buying opportunity. un I believe that the company will continue to face strong headwinds in the coming days due to the imbalance in supply and demand. Moreover, number of mining un and minerals companies are expanding their production levels to off-set the pricing pressure, which is further deteriorating the situation. Hence, I again recommend investors to stay away from Vale S.A.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...) The author wrote this article themselves, and it expresses their own opinions. The author un is not receiving compensation for it (other than from Seeking Alpha). The author has no business un relationship with any company whose stock is mentioned in this article.
Thank you for your interest in Seeking Alpha PRO Our PRO subscription service was created for fund managers, and the cost of the product is prohibitive for most individual investors. PRO Alerts is our flagship product for individual investors who want to be faster and smarter about their stocks. To learn more about it, click here. If you are an investment un professional with over $1M AUM and received this message in error, click here and you will be contacted shortly. un
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