Vale's Coal Challenges Will Continue

At a time when Vale (VALE) needs all the good news it can get, its coal unit continues to suffer setbacks, with the latest being its announcement it is cutting its coal export target for 2013 from its Mozambique coal mineby about 30 percent.

This follows in the footsteps of a 2nd disruption at its Sena rail line operations, where on May 12 some potters blocked the line in an effort to extract further compensation for abandoning their homes in order for the mine to be developed. That has been resolved and shipments resumed, but it probably had more of a public relations effect on the company than warranted because of current weak market sentiment.

 

continue reading ...

Silver Wheaton's (SLW) Smallwood Says Vale Deal Not a Strategy Change

Immediately after the announcement by Silver Wheaton (NYSE: SLW) of the gold streaming deal with Vale (NYSE: VALE), questions arose on whether or not the company's focus in the future would migrate more towards gold.

CEO Rand Smallwood quickly put speculation to rest, as he said the deal shouldn't be construed as an attempt to change the priority of silver towards a balance of gold and silver.

“This isn’t a change in focus for us. We’ve always been interested in broader precious metals so I still call us a silver-focused streaming company,” Smallwood said. “We do focus on silver and will still focus on silver but we don’t ignore the broader precious market, mainly because of the same reasons we invest in silver apply to gold.

“We’re not scared to step into the gold space when there’s top-quality assets and top-quality partners,” Smallwood added. “It’s worth stepping into the gold space when there are opportunities like this.”

One of the several aspects the market likes about this deal is who it was done with. Overall, Silver Wheaton has a good track record of putting together deals with larger and safer companies, which have helped build the foundation of its current success.

Production on an annual basis for gold will jump to 110,000 ounces, equal to about 5.9 million ounces silver equivalent.

For that, Silver Wheaton paid $1.9 billion and 10 million company warrants with a strike price of $65 and a 10-year duration.

Silver Wheaton was trading at $37.01, up $0.22, or 0.60 percent, as of 12:16 PM EST.

Silver Wheaton (SLW) Acquires Gold Rights to Salobo Mine, Sudbury Mines

Silver Wheaton (NYSE: SLW) announced in a press release that it has acquired 25 percent of the gold production for the life of Salobo Mine and 70 percent of gold production of Sudbury Mines for a 20-year period from Vale S.A. (NYSE: VALE).

The terms of the deal per the press release are these:

 

The Company will pay Vale total cash consideration of US$1.90 billion, plus 10 million Silver Wheaton warrants with a strike price of US$65 and a term of 10 years1. US$1.33 billion will be paid for 25% of the gold production from Salobo, while US$570 million will be paid for 70% of the Sudbury gold production. In addition, Silver Wheaton will make ongoing payments of the lesser of US$400 (subject to a 1% annual inflation adjustment from 2016 for Salobo) and the prevailing market price, for each ounce of gold delivered under the agreement.

Combining the production from both mines, Silver Wheaton will boost its gold production by 100 thousands ounces a year, with about 60,000 ounces from Salobo and around 50,000 ounces annually from Sudbury.

Over the next five years, gold revenue from the deal with brnig the percentage of gold exposure of Silver Wheaton to an average of 12 percent, going as high as 25 percent some years.

Including the new streams, Silver Wheaton revised its production guidance, with 2013 now expected to include 33.5 million ounces of silver equivalent production, along with 145,000 ounces of gold. For 2017, silver equivalent production is estimated to come in at 53 million ounces, and gold at 180,000 ounces.

CEO Randy Smallwood said this in the release:

"Partnering with Vale on two new gold streams represents a significant step forward for Silver Wheaton and for the streaming model as a whole.  Not only does Silver Wheaton gain accretive gold ounces to further grow and diversify our company, but the precious metals streaming model has now been further endorsed by another one of the world's preeminent mining companies."Silver Wheaton is a proud Canadian company, and we are also excited to be adding another asset based here in Canada , our second one in less than a year."

"While we have traditionally focused on silver, we have never been averse to strategically adding 'the right' gold streams to our portfolio. The world-class nature of the Sudbury operations and the Salobo mine, with its exciting expansion and exploration potential, along with the quality of Vale as an operating partner, convinced us that these assets would be ideal additions to Silver Wheaton's portfolio. Consistent with the mines underlying our existing streaming portfolio, the precious metal coming from both of these assets is produced as a byproduct and represents only a small fraction of the overall economics of the mining operations. While we will continue to believe there are a significant number of streaming opportunities in the silver space, we are also open to layering more high-quality gold streams into our portfolio."

"Vale has a history of mining success spanning decades, and we are confident that Salobo and Sudbury will deliver substantial long-term value to both companies' shareholders. These gold streams will significantly increase Silver Wheaton's overall growth profile, which, given our unique dividend policy, should also translate directly into dividend growth."

Silver Wheaton closed Tuesday at $36.24, up $0.24, or 0.67 percent.

Vale (VALE) (MUR) (YZC) (NSU) (CMK) (KMP) (CRK) Ratings Changes and Initiations

Vale (VALE), Murphy Oil (MUR), Yanzhou Coal Mining (YZC), Nevsun Resources Ltd (NSU), Cline Mining (CMK), Kinder Morgan Energy Partners LP (KMP) and Comstock Resources (CRK) had analysts change or initiate ratings on them.

Brean Murray upgraded Murphy Oil (MUR) from a "Hold" rating to a "Buy" rating, while Societe Generale downgraded Murphy Oil from a "Buy" rating to a "Hold" rating. They have a price target of $60.00 on the company.

Citigroup (C) downgraded Yanzhou Coal Mining (YZC) from a "Buy" rating to a "Sell" rating.

Zacks downgraded Vale (VALE) from a "Neutral" rating to an "Underperform" rating. They have a price target of $17.00 on the company.

Haywood Securities downgraded Nevsun Resources Ltd (NSU) from an "Outperform" rating to a "Sector Perform" rating.

Dundee Securities downgraded Cline Mining (CMK) from a "Buy" rating to a "Neutral" rating.

Imperial Capital downgraded Kinder Morgan Energy Partners LP (KMP) from a "Buy" rating to a "Sell" rating.

Brean Murray initiated coverage on Comstock Resources (CRK). They placed a "Hold" rating on the company.

Vale (VALE) (CPO) (KMI) (TAS) (NYX) (USB) Ratings, Price Targets

Vale (VALE), Corn Products International, Inc. (CPO), Kinder Morgan (KMI), Tasman Metals Ltd (TAS), NYSE Euronext (NYX) and US Bancorp (USB) had ratings and price targets on them adjusted by analysts.

Morgan Stanley upgraded Vale (VALE) from an "Equal Weight" rating to an "Overweight" rating.

DA Davidson initiated coverage on Corn Products International, Inc. (CPO). They have a "Buy" rating on the company.

Morgan Stanley initiated coverage on Kinder Morgan (KMI). They placed an "Equal Weight" rating.

Global Hunter Securities upgraded Tasman Metals Ltd (TAS) from an "Accumulate" rating to a "Buy" rating. They have a price target of $7.00 on the company.

Stifel Nicolaus downgraded NYSE Euronext (NYX) from a "Hold" rating to a "Sell" rating.

ISI Group downgraded US Bancorp (USB) from a "Buy" rating to a "Hold" rating.

Vale (VALE) (EGO) (GEOI) (CXPO) (EOG) (APC) Ratings, Price Targets

Vale (NASDAQ: VALE), Eldorado Gold Co. (NYSE: EGO), GeoResources, Inc. (NASDAQ: GEOI), Crimson Exploration (NASDAQ: CXPO), EOG Resources (NYSE: EOG) and Anadarko Petroleum (NYSE: APC) ratings and price targets.

Eldorado Gold Co. (EGO) was upgraded by UBS AG (NYSE:UBS) from a “Neutral” rating to a “Buy” rating.

Vale (VALE) was downgraded by UBS AG from a “Buy” rating to a “Neutral” rating.

GeoResources, Inc. (GEOI) was downgraded by Sidoti from a “Buy” rating to a “Neutral” rating.

Crimson Exploration (CXPO) had its price target raised by Rodman & Renshaw to $3.75.

EOG Resources (EOG) is now covered by Bank of America (NYSE:BAC). They have a “Neutral” rating on the company.

Anadarko Petroleum (APC) was upgraded by Raymond James (NYSE:RJF) from an “Outperform” rating to a “Strong Buy” rating.

Vale's (VALE) Short and Long-Term Outlook Seems Strong

The short and long-term prospects of Vale SA (NYSE:VALE) look solid, although there is the overhand and uncertainty surrounding the interference of the socialist government of Brazil and what it may do in any given circumstance they disapprove of, like the direction former CEO Roger Agnelli was taking the company, which resulted in the Brazilian government pressuring the company to replace him with its man, Murilo Ferreira, who is now CEO of the resources company.

Other than the risk of the Brazilian government, the sector itself looks solid in the near and long term, with the company looking to double production capacity over the five or six years.

The other major risk to the company is its currency, which the company is heavily exposed to because about 65 percent of costs are in reais.

In the very short term iron ore prices are expected to remain unchanged, although they are still sitting near record highs.

Vale Chief Executive Officer Murilo Ferreira said, "The price will remain practically unchanged for the third quarter."

Concerning credit tightening in China, Ferreira added, "I don't believe in a slowdown in China, but rather a movement in the economic cycle. I expect a strong second semester for China."

Analysts also see strong Chinese demand and supply challenges offering support to the company.

Goldman Sachs (NYSE:GS) raised their price target on Vale (VALE) to $44.00. They have a “buy” rating on the company.

Vale closed Tuesday at $32.26, gaining $0.38, or 1.19 percent.

Cliffs Natural Resources (NYSE:CLF), BHP (NYSE:BHP), Rio Tinto (NYSE:RTP), Vale (NYSE:VALE) Move Up as Commodity Prices Surge

The expected positive disruption in the commodity sector has happened in a big way after the announcement by the Federal Reserve that they were going to resume inflating, and natural resource companies like Cliffs Natural Resources (NYSE:CLF), BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RTP), Vale SA (NYSE:VALE) all soared with the inevitable plunge in value of the U.S. dollar accompanying the quantitative easing.

Gold prices are soaring to new highs, as spot gold approached $1,400 an ounce at the end of closing on Thursday. Aluminum prices also reached levels not seen since April.

BHP closed Thursday at $91.20, gaining $5.12, or 5.95 percent. Cliffs ended the session at an even $70, rising $3.13, or 4.68 percent. Rio Tinto surged to close in New York at $70.52, increasing by $3.74, or 5.60 percent. Vale SA ended the day at $33.80, rising by $1.34, or 4.13 percent.

The overall commodity sector exploded Thursday as what appears to be pent-up expectation and anticipation concerning the Fed move poured out through investors putting their money into the commodity sector in a big way.

Vale (NYSE:VALE) Positioned to Grow Organically, Spending $28 Billion on

Vale SA (NYSE:VALE) CEO Roger Agnelli said when talking with investors Monday that the company will focus on organic growth, looking at spending from $26 billion to $28 billion on projects.

Agnelli said the company had been buying up assets from 2004 through 2006, and while open to potential acquisitions, doesn't see anything at this time that is attractive.

Even if he did, the focus on the company will remain on organic growth.

The major focus in that area for Vale is iron ore and fertilizers.

Now Vale needs to shed the yoke of the Brazilian government off its neck so it doesn't have to operate under the threat of a veto if it does want to go in certain directions.

The government owns 51 percent of Vale, and can can veto or change the leadership of the company whenever it chooses to.

Freeport (NYSE:FCX), BHP (NYSE:BHP), Rio (NYSE:RIO), Vale (NYSE:VALE) Soar on Rising Copper Prices

Gold prices aren't the only metal soaring on the inevitable continuation of inflationary measures by the Federal Reserve, which they now call "quantitative easing" now, as copper is the also moving up in price, and major copper miners like Freeport-McMoRan (NYSE:FCX), BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RIO), Vale SA (NYSE:VALE) are moving up in unison with it.

Copper prices today (Wednesday) increased to $8,430 a ton, the highest levels it has reached since July 2008, or for 27 months. Two-year highs have been the norm for copper since the latter part of September.

Another reason for the higher copper prices is the tightening of stock, where LME stocks have fallen 475 tons to 371,275 tons since February, a 30 percent drop.

The fall in the value of the U.S. dollar is the consequence of the misguided Federal Reserve policies, and that is the major catalyst behind the booming metals prices and upward move of the metal miners.

Citigroup (NYSE:C), Deutsche (NYSE:DB) Hired by Sinochem for Counter Bid for Potash (NYSE:POT) Against BHP (NYSE:BHP)

Rumors continue to circulate that China's Sinochem is back in the game for making a bit for Potash (NYSE:POT) against BHP (NYSE:BHP), with Citigroup (NYSE:C) and Deutsche Bank (NYSE:DB) being hired to help finance a potential bid, according to a newspaper report.

While Sinochem continues to assert they're interested, they evidently haven't decided to take the step, but are rather putting financial pieces into place in case they do.

China was furious with BHP, along with Vale (NYSE:VALE) and Rio Tinto (NYSE:RTP) over iron ore pricing, and seem to believe if BHP were to land Potash Corp., it could result in higher potash prices years into the future.

That is actually a wrong assessment by China, as least as measured by past practices of BHP, who historically prefer to produce at market price rates, rather than attempt to control supply in order to keep potash prices at higher levels in order to protect margins and earnings.

This is what the big stink in Canada is about when BHP said they would eventually leave Canpotex once current agreements were fulfilled. That has Saskatchewan particularly upset, as they perceive royalty money extracted form Potash Corp. shrinking.

More than likely that's not true, as volume would make up for lower margins, similar to how Wal-Mart (NYSE:WMT) has low margins but turns their inventory over at incredible rates to make up for it.

Add to this the higher probability of Canada opposing a takeover of Potash by a Chinese government-controlled company, and it seems a step backward from BHP.

Unless Canada decides they don't want BHP at any price to own Potash, it's hard to see on what basis they could legitimately reject the deal.

More than likely the shareholders of Potash will be the determining factor, and if they get it in their heads BHP will pay far more than the current offer, we will probably see the deal thwarted in that regard, rather than from regulatory hurdles.

Bernstein Thinks BHP (NYSE:BHP) Bid for Potash (NYSE:POT) Could Reach $156 a Share

A Bernstein analyst today said he believes the bid by BHP Billiton (NYSE:BHP) for Potash Corp (NYSE:POT) could be increased to $156 a share, far above the existing offer of $130 a share.

BHP Chief Executive Office Marius Kloppers has been adamant he won't be increasing the offer, especially to levels where it would offer no value to shareholders in the company.

And while there has been alleged interest from China in bidding for Potash, Bernstein asked the question of why China would make a bid for the company focuses on domestic production and the acquisition of potash from the middle east.

The answer is if China is actually interested in Potash, and it's not a ploy to push BHP's bid up, it would probably be because of their experience with the iron ore industry, which is dominated by three companies, including BHP, Vale (NYSE:VALE) and Rio Tinto (NYSE:RTP), where they were able to name their price because of their dominance in the sector.

If that were to happen with potash, it would cause China to pay much more for fertilizer as their agriculture sector needs to produce significantly more to meet the needs of their people. Another major consortium in Russia has control of the sector on that side of the world, which is even more powerful than Canpotex, which controls the supply end of potash in the region, thus prices, and includes Agrium (NYSE:AGU), Mosaic (NYSE:MOS), and Potash Corp.

So barring a major competitive bid, it would be surprising to see a bid as high as suggested by Bernstein.

BHP (NYSE:BHP) Facing First Regulatory Hurdles in Potash (NYSE:POT) Bid

Next week the first hurdles to the bid by BHP (NYSE:BHP) may have to be faced in their $39 billion bid for Potash Corp. (NYSE:POT).

While a lot of issues have been brought up in the media concerning the deal, in reality there is very little reason for resistance to the bid.

For example, the competition board of Canada will be looking at the deal from that perspective, but since BHP doesn't even produce Potash at this time, it is largely irrelevant.

A review under Investment Canada will probably be the major challenge for BHP, as they must prove it'll be beneficial to Canada for them to take over Potash Corp.

There is also an issue of national security, which most think is a real stretch, with only the idea of potash being used in the ground to increase crop yields the only supposed issue there, something that would be hard to prove or even take too seriously.

While few are talking about it straight, the real bottom line here is whether BHP would remain in Canpotex, which is the marketing arm of Potash, Mosaic (NYSE:MOS) and Agrium (NYSE:AGU).

The Canadian province of Saskatchewan receives royalties from potash sales, and they would decrease if BHP left the consortium and produced potash on their own, which would assuredly push prices down, contrary to alleged concerns from the Chinese who believe they would increase prices if they took over the fertilizer company.

This paranoia comes from the interaction by China with iron ore giants Vale (NYSE:VALE), Rio Tinto (NYSE:RTP) and BHP, which increased prices when they changed the time-frame of iron ore contract earlier in the year.

Even so, unless there is a lack of integrity or a higher bid is offered, there is really no reason BHP shouldn't be allowed to take over Potash.

Vale (NYSE:VALE) Joins BHP (NYSE:BHP) in Diversifying into Fertilizers

Although Vale (NYSE:VALE) and BHP Billiton (NYSE:BHP) aren't new to fertilizers, it is the growing focus for growth they're looking to the sector for, expanding far beyond their metals' base.

Vale has laid down the gauntlet, saying over the long term they're going to become the largest producer of fertilizer in the world.

At this time their goal for the next seven years for potash is to increase production to 10.7 million tons a year, and triple their annual phosphate production to 19.2 million. Now the company produces from 6 to 7 million metric tons of phosphate on a yearly basis.

If they achieve those combined goals, at that time they would be the largest producer of fertilizers in the world.

In potash they would still be behind Mosaic (NYSE:MOS) and BHP Billiton, assuming BHP lands the potash deal. Of course if they do, BHP has already said they're going to ramp up production, which makes the assertion of being the largest supplier of fertilizer in the world by 2017, making it a much larger challenge for Vale.

The bottom line is metal companies are diversifying even more, and the large ones are positioning themselves in a way which could make them much less cyclical when combining all their products.

Bank of America (NYSE:BAC) Says Latin America to Invest Heavily in Mining, Steel

A report from Bank of America (NYSE:BAC) said Latin America companies could invest up to $100 billion over the next five to ten years from its mining, steel and fertilizer markets, in order to keep up with the growing domestic demand.

In a note to clients, Bank of America analysts Felipe Hirai and Thiago Lofiego said returns on investment will drop from the 30 percent over the last several years, to a range of 10 to 25 percent. They based their assertions on increasing costs and the probability that the price of metals will drop over the next three to four years.

The two analysts said, "Higher investments are coming with lower returns in an environment of a weaker global economic growth and with still significant execution risks."

Companies best positioned to invest in according to the report, were Vale (NYSE:VALE), CSN, and Southern Copper (NYSE:SCCO). Vale is the world's largest iron-ore producer, CSN is the third-largest producer of steel in Brazil, and Southern Copper is the largest producer of copper in Peru and Mexico.

China May Bid on Potash (NYSE:POT) Says JPMorgan (NYSE:JPM)

JPMorgan's (NYSE:JPM) Ian Henderson, who manages about $7 billion in resource assets for the financial institution, says there's a strong possibility China may make a bid for Potash Corp. of Saskatchewan Inc. (NYSE:POT), now that BHP Billiton (NYSE:BHP) has revealed it's interested in acquiring the fertilizer giant.

Henderson noted in a Bloomberg Television interview, that China and Brazil may be interested, but China is “dependent upon potash exports so they are a big customer of Potash Corp.," while “Brazil does have its own potash reserves and these can be developed and I think Vale is increasing their own production plans already.”

From China the most likely companies to make a bid include the sovereign wealth fund, China Investment Corp.; Sinochem Group; or Sinofert Holdings.

Included in the resources Henderson manages are mining stocks such as BHP Billiton and Vale SA ((NYSE:VALE), a Brazilian natural resources company.

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.

Vale (NYSE:VALE) Up as Morgan Stanley (NYSE:MS) Says China Easing Tightening

Morgan Stanley (NYSE:MS) says China appears to be easing tightening measures to manage growth, and Vale SA (NYSE:VALE) responded Tuesday by rising over 6 percent in New York on the news.

Vale is the leading producer of iron ore in the world, and would benefit strongly if the assertion by Morgan Stanley proves to be true. It would of course help their competitors like BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RTP), along with those in the steel industry as well.

The problem seems to be there is no proof of the assertion, only speculation.

It would be a major change in policy, which seems to have barely started to be implemented, making it a stretch as to it being true. This hasn't stopped analysts and others from jumping on the bandwagon and acting as if this is already a story that has happened.

Vale is reportedly running its iron ore plants at full capacity in anticipation of the possibility, and the company director, Claudio Alves claims China is starting to replenish their steel stockpiles.

This may or may not mean they are changing policy, as rebuilding stockpiles could be from prior use which isn't scheduled for huge building projects going forward.

If this is found to be true, just about every precious metal and companies producing them would shoot up in price. For now, we should wait to see if this is really the case, as many assertions have been made but no proof offered.

Mosaic (NYSE:MOS) Investment in Vale (NYSE:VALE), Mitsui Completed

Mosaic Company (NYSE:MOS) has closed the investment deal in a joint venture with Vale (NYSE:VALE) and Japan-based Mitsui.

Jim Prokopanko, Mosaic's President and Chief Executive Officer, said this, "We are pleased to close this transaction that advances our strategic objective to secure our phosphate rock supply."

The phosphate rock supply mentioned by Prokopanko is located in the Bayovar region of Peru.

Mosaic paid Vale $385 million for their stake in the project. Also included in the terms was a 35 percent economic interest, along with supply agreement which they get up to 35 percent of the phosphate produced from the mine.

Vale (NYSE:VALE) CFO Leaves for Other Opportunities

Vale (NYSE:VALE) CFO Fabio de Oliveira Barbosa has reportedly left the company on Monday, according to a filing from the giant mining company.

In a statement Vale said Barbosa is leaving because he's looking for "new professional challenges."

The board of Vale has proposed that Barbosa be replaced by global corporate finance director Guilherme Perboyre Coavalcanti, who has been in that position since 2005.