Thursday, July 29, 2010

Vale (NYSE:VALE) Acquiring Copper Company to Diversify Income Streams

In a move to diversify their income streams, Vale (NYSE:VALE) announced they're acquiring Brazil copper miner Paranapanema for $1.13 billion, a 20 percent premium for the company.

This is a timely move for the miner, as iron ore prices are high, and to acquire a company strategically in a time of strength is a wise move in my estimation.

Even though they did pay a premium for Paranapanema in a time of depressed copper prices, copper prices will inevitably move up again, and when that happens, Vale SA has positioned themselves strongly to take advantage of that.

Vale paid an actual premium of 22.4 percent, measured by the average share price of Paranapanema over the last 90 days. Vale will have a 100 percent stake at the close of the deal.

With 55 percent of revenue coming from iron ore, Vale has been wanting to expand beyond that to make other metals a larger part of their revenue. Copper was only 3 percent of revenue in the first quarter for Vale.

Vale also expanded into fertilizer earlier in the year, acquiring Bunge's (NYSE:BG) domestic fertilizer assets for close to $3.8 billion.

The earnings report for Vale is scheduled after close of the markets today.

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