Part 1 Of 5: A Primer To Vale

| About: Vale S.A. (VALE)


In this 5 part series we aim to introduce VALE and discuss 2015 and how the commodities rout has taken its toll on VALE.

We discuss macroeconomics of the business.

We will cover the fundamentals, the underlying commodities, and a full valuation of the stock in the next 4 parts.

It is no secret that modern man relies heavily on steel. Our cities are built of steel, and we have yet to produce a cheap material with the structural resilience and malleability that steel exhibits. We will continue to use steel as our base structural material for the 100 years.

It is also no secret that the value of iron ore has plummeted precipitously over the last 3 years, losing $100 in value per tonne as demand from China, India, and other developing countries has slowed. Cities can be built quickly, but filling them with people and economy proves a much harder task.

Along with the equally-brutal fall in gold and oil prices over the last 2 years, iron ore seems to be caught in the now-apparent whirlwind of slowing global economic growth activity. You can read many articles and opinion pieces on how this signals the end of an era. They say, "The old materials that formed our infrastructures and superstructures are dead. Avoid them like the plague"

These statements stem from hysteria; one can easily fall victim to this prison of belief as current commodity prices act as a mechanism confirmation bias. However as smart investors, we seek to turn away from the noise, and instead derive the truth at hand in order to find arbitrage and exploit it.

Vale S.A. (NYSE:VALE) offers us the kind of arbitrage in pricing that we like to exploit. As the world's largest iron ore producer, Vale S.A. has seen its PPS and MCap plummet in lock step with iron ore prices. As a non-diversified miner, Vale's performance is directly linked to the spot market price of iron ore. Its profit margin is completely dependent on how much iron they can find, extract, and sell to countries that are undertaking civil and private construction projects.

Vale is a monster. Better yet, it is a monster that you can acquire for discount prices. This is part one in a series that will provide the macro-economic, fundamental, and technical approaches to analyzing and entering this stock to add long-term value and resilience to your portfolio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is a part of a five part series on VALE. We aim to complete a full valuation of VALE, and give a complete picture of its business, history, and future.