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Vale Stock Could Benefit from Focus on Shareholder Returns


Dec. 7 2018, Updated 1:59 p.m. ET

Vale Day 2018

Vale (VALE) hosted Vale Day in New York on December 4. During the event, the company provided a detailed review of each of its divisions. The company’s presentation had three main takeaways for investors and analysts:

  • It plans to focus on high-quality ore and pellets in iron ore.
  • It is working to overcome the challenge in base metals (DBB) and start delivering volume growth at competitive costs. It’s calling 2019 “the turnaround year” in this regard.
  • It’s aiming at maintaining discipline in capital allocation and remains committed to continuing to distribute free cash flow to shareholders.

The company also delivered on its last Vale Day commitment to rein in debt and reduce it to $10 billion from $21 billion. Vale’s management sounded very confident about the company’s future prospects and creating shareholder value. Vale’s president and CEO, Fabio Schvartsman, said, “We made in this bold remark that Vale would be the company to generate more value to its shareholders. And we are glad to tell you that, that is really happening and is here for staying.”

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Vale’s outperformance YTD

Vale’s stock has outperformed its close peers on a year-to-date basis. Until December 4, 2018, the stock has gained 11.2% as compared to Rio Tinto’s (RIO) loss of 10.5%, BHP’s (BHP) fall of 0.2%, Freeport McMoran’s (FCX) loss of 42.8%, and Glencore’s (GLNCY) loss of 30.2%. Vale’s prudent capital allocation strategy, change in governance practices, and focus on deleveraging and cost reduction have led to the stock’s outperformance in 2018.

In this series

In this series, we’ll look at the Vale Day highlights. We’ll see how Vale’s various business segments are placed in the current commodity price environment. We’ll also see what management is doing to position the company in this environment.

Let’s start by looking at Vale’s Iron Ore division.


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