24-7 Wall Street Insights
- Vale S.A. is Brazil’s premier mining company, and a major global level copper and iron ore supplier.
- Increased global copper demand is fueling upside interest in Vale S.A., which lacks the geopolitical and legal issues facing a number of its regional rivals.
- Vale S.A.’s combination of industry market share, high dividend, and bullish future prospects are an attractive package for investors.
- For investors seeking dividends, click here for a free report on two high dividend stocks.
Vale S.A.
Vale S.A. (NYSE: VALE)
Yield: 16.43%
Brazil is blessed to be among the most resource-rich countries on Earth. As the `B’ in BRICS, Brazil, along with Russia, India, China and South Africa, has become a formidable economic bloc with currencies that can boast tangible assets to guarantee their creditworthiness. A recent Forbes article published at the end of June, “BRICS Making Good Progress On Their Golden Path” cited how gold will likely become the BRICS standard, while other commodities will be criteria for subsequent membership from the many applicant nations who may sport other important assets, like Saudi Arabia and its oil.
As Brazil ranks #28 in terms of national gold reserves globally, its BRICS charter membership is clearly predicated on its vast stores of other important commodities. Among these are iron, copper, silver, nickel, platinum, and coal, for example. Brazil boasts several multinational companies that handle the cultivation, development, production and sales of its raw materials and commodities. With a roughly $48 billion market cap, Vale S.A., headquartered in Rio De Janeiro, is one Brazil’s top conglomerate entities, and is the country’s primary mining, energy and infrastructure conglomerate.
The Sum of Its Parts
Vale S.A. has (4) primary divisions. Some of them work in conjunction with one another as part of the overall supply chain:
- Mining – Vale S.A. is one of the top 3 global iron ore producers, along with Rio Tinto and BHP. The company is involved with mining copper, nickel, manganese, gold, silver, platinum, cobalt, manganese, and coal. Vale S.A. owns a separate business for processing nitrates and fertilizers, which has become an outgrowth of its raw material mining operations.
- Land Logistics – Vale S.A. owns (3) Brazilian railroads: Vitória a Minas, Carajás, and Ferovia Central-Atlântica. These railroads utilize Vale’s 35,000 railcars and 800 locomotives for the transportation of commodities, other cargo, and passengers.
- Maritime Logistics – Vale S.A.’s hydropower energy division controls several dams in Brazil, as well as a number of maritime port terminals throughout Brazil and in Perak, Malaysia. Vale S.A. also owns a fleet of 35 VLOC (Very Large Ore Carrier) bulk carrier vessels. Each VLOC spans about 1,200 feet and is 400,000 DWT (Dead Weight Tons) rated.
- Energy – through control of its dams, Vale handles and distributes hydroelectric power through 8 power plants, predominantly in the Minas Gerais state, which is Brazil’s second most populated area.
Vale S.A. ADRs trade on the NYSE, with the stock also listed on the Rio De Janeiro, Jakarta, Paris, and Madrid exchanges as well. In its Q1 2024 financials, Vale S.A. reported iron ore sales up 15% and its copper sales up 22.5%. Its Salobo copper mines are the largest in Brazil. Vale S.A. has already budgeted $3.3 billion to expand its copper production to 500,000 MT per year by 2030 from its 326,000 high of 2023. Vale S.A. also stated in its Q1 2024 earnings call that it had reduced copper mining costs by 26%, thus increasing future margins.
Copper Advantages
Vale S.A.’s copper mining activities are currently drawing strong institutional investment interest. Copper’s critical infrastructure applications for electrical and plumbing infrastructure, in addition to industrial and manufacturing, are huge. The Copper Development Association calculates that the average 2,000 square foot single family home has 439 pounds of copper with 346 pounds of it in electrical wire and plumbing fittings. However, it is the growth of AI that is fueling anticipated future demand.
The gargantuan amount of energy required to power AI and the proliferation of data centers needed to operate AI means that the corresponding electrical infrastructure must grow commensurately. As such, this entails that copper electrical wire demand is expected to soar in the near and forthcoming future. This overwhelming power demand is also a part of what is fueling the return to oil and gas, since wind and solar power sources are proving inadequate for the task.
Since the release of ChatGPT, copper futures have gained 19% with spot prices rising 12% on the London Metal Exchange. Singaporean commodity trading titan Trafigura estimates that the combined needs of cumulative growth in AI, electricity demand, and EVs will create an added demand of 10 million pounds of copper over the next 10 years.
Other copper ore-rich nations like Panama. Chile, Peru or Argentina have experienced a number of political, geological, or legal issues that have disrupted their mining operations. Production falloff has led to a steep fall in reserve supplies. However, for these countries to revive production levels to previous heights will require substantial investment and legislative reform. Brazil, and Vale S.A. share none of these problems at present.
As a result, analysts’ consensus 12-month target of $15 for Vale S.A. equates to a roughly 38-45% upside from market price at the time of this writing. Of course, the yield of 16.43% would be reduced accordingly with the stock price rise.
Given its standing in its industrial sector, its substantial dividend, and current price, Vale S.A. is 24/7 Wall Street’s choice for Single Best Dividend Stock to Buy Under $17 for July.
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