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Bob Johnson  

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  • Vale S.A.: A Buy Or A Sell? [View article]

    Your question is a very good one. Vale has promoted itself as #1 for a very long time as have the sell-side analysts. This once-true position as the leading iron producer has been sliding away for several years. It currently has a slight edge in volume, and unquestionably has some of the richest ore sources on the planet.

    Vale has become second rate because of its recent inaction concerning productivity. No doubt this is a result of the burden of being under the influence of a political bureaucracy, which is corrupt.

    Formerly the low cost producer, that profitable honor now goes to Rio Tinto, whose CEO, Sam Walsh, has made great productivity gains in the past year and who has announced that Rio now has the lowest production costs in the industry at $20/tonne. Most of the up to date facts regarding Vale are available at

    My personal opinion is that number four producer, Fortescue, may be in trouble before the iron ore glut is over. This is owing to lack of the efficiencies of scale and the higher productivity of the larger firms, and is exacerbated by its high debt level. In addition, I would rank BHP as higher than Vale on productivity, profits and predictability... with 11 consecutive years of dividend increases, compared to Vale's stunning losses, declining stock prices and dividend cuts. Therefore, perhaps it is more accurate to name Vale as third rate.

    I hold BHP and, by the way 1Great, I read your profile. I also hold RY, BNS and BCE and write on Canadian banks and telecoms as well as mining and portfolio strategy.

    Best regards,
    Bob J
    Jun 14, 2014. 07:47 AM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    So true. But no one else in the industry has 11 consecutive years of dividend increases, the diversity of BHP or the large scalable resources in stable countries.

    Compared to other sectors, mining has not done well in the past several years. However, I believe your investment in BHP is safe and sound, and the minerals in the ground managed by them are a terrific long term hedge against inflation, while yielding nearly 4%. In addition, the average annual rate of return on BHP for the past 12 years is 15.3%, and the 10 year average dividend growth rate is 25%.

    I am very happy with my investment in BHP, even though other stocks have had more dramatic price run-ups, especially if bought in the past 5 years. BHP has treated me well and may make my grandchildren rich.

    Stay the course.

    Best regards,
    Bob J
    Jun 13, 2014. 10:11 PM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    I certainly did speak of long-term profitability and return on equity and illustrated and reported on shareholder value and share price.

    3 year annual revenue CAGR, -9.63
    3 year stock price, -25.58/year
    ROE, current, -0.75
    ROE 2012-2013, 1.19
    Net income TTM, -127.08M
    EPS past 5 years, -51.50
    EPS estimate next year, -1.57

    These numbers are exactly what was reported in the article in various tables of data.

    "Morgan Stanley cuts its iron ore price estimate for this year and foresees a further drop in 2015, as a seaborne surplus grows faster than expected and the level of cost support at Chinese producers declines.

    Prices are expected to average $105/ton this year vs. $118 forecast in May and $135 in 2013, and average ~$90/ton in 2015, 21% below an earlier estimate." Bloomberg, 6/12/2014. Cited above with link in a comment by me.

    How's this for logic: if Vale can't turn a profit with IO prices at $135/tonne, how well are they going to do with prices at $105/tonne this year and $90/tonne in 2015.

    Add to this that Rio has improved efficiencies and capacity tremendously in the past year. Vale is a year behind them in efficiency and Rio Tinto CEO, Sam Walsh, says his cost is $20/tonne, the lowest in the industry.

    Longer term, industry predictions are that IO prices will not bottom until 2016, and that the supply surplus will continue through about 2018.

    Review the facts, "just the facts" as reported in the article. Too often we are swayed by sell side analysts and unknowingly buy into company propaganda. In addition, there is a historic mythology about the firm, created in different times, which is no longer useful.

    Don't let out of date ideas cost you money.

    Best regards,
    Bob J
    Jun 13, 2014. 09:39 PM | Likes Like |Link to Comment
  • The Time Warren Buffett Got It Wrong [View article]

    Congratulations on a great article and a well earned editors pick.

    I concur with many points. I especially agree that is smart to own some assets which are not highly correlated to the major US indexes. Bonds are the classic example, and cash works too. Other strategies can include small cap stocks, international equity holdings and alternative investments such as royalty trusts, MLPs and real estate. I have some of each and have recently added to my bond holdings. In the last 6 months, LQD is up almost 4% (what interest rate increase?), and JNK (somewhat stock like in movement) about 2.5%.

    Keep up the good work, Dale.

    Best regards,
    Bob J
    Jun 12, 2014. 08:20 PM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    I believe that Vale does indeed make pellets, and currently has a joint venture with Rio in an operation. Are we talking about a different market for pellets? Isn't most pellet production marketed to the Americas where natural gas is cheap and to Europe?

    The rocks from the Carajas region in the Amazon Basin average 67% iron, the highest in the world. This is their strongest advantage.

    Best regards,
    Bob J
    Jun 12, 2014. 08:02 PM | Likes Like |Link to Comment
  • From Strength To Strength In Asia: Australia & New Zealand Banking Group [View article]

    Thank you for the interesting article on Australian & New Zealand Banking Group.
    The strategy of the bank sounds a little like that of Bank of Nova Scotia (BNS), a holding of mine which is one of the Big 5 Canadian banks.

    The stock of the bank is not listed on a major exchange in the US, but rather trades OTC, that is, over the counter, as ANZBY. This greatly decreases the coverage of the bank by major US data reporting services, Yahoo Finance, etc., and is more likely to cost a small buyer or seller a premium than a more liquid listed issue.

    For a possible US based buyer, there are at least two other issues. First, there is currency risk, inherent in any foreign issue. Your comments? Second, Australia taxes dividends to foreigners, unless those dividends have been fully franked. The status concerning that?

    I note that NYSE listed Westpac Banking Corporation, WBK, which I hold, has tracked ANZBY very closely for the past one year period. That firms pays a fully franked dividend at a slightly higher rate, 5.2%, rather than the 4.86% dividend of ANZ Bank.

    I am sure you would agree that both of these banks are sound investments. However, for the US investor, this one at least, it makes more sense to own WBK.

    Best regards,
    Bob J
    Jun 12, 2014. 01:27 PM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    Please see my response to a similar question above from Slowly Learning.

    Best regards,
    Bob J
    Jun 12, 2014. 12:02 PM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]
    Cash McCall,

    I have included a comment to you at @Cash McCall in my comment to jenksjr below.

    Bob J
    Jun 12, 2014. 10:22 AM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    Perhaps this news will help you understand the realities of the current, and intermediate, iron ore prices.

    @Cash McCall
    I take umbrage with the remarks saying "you are wrong", "Iron ore prices are normalizing from a shortage situation six years ago." Your malicious remarks such as "Your article was propaganda and flatly misleading" are uncalled for. Those remarks are clearly refuted by facts. I invite you to take your hostilities elsewhere.

    "Iron ore price outlook cut by Morgan Stanley, miners lower premarket
    SA – 8:28 AM Thursday 6/12/2014

    • Morgan Stanley cuts its iron ore price estimate for this year and foresees a further drop in 2015, as a seaborne surplus grows faster than expected and the level of cost support at Chinese producers declines.
    • Prices are expected to average $105/ton this year vs. $118 forecast in May and $135 in 2013, and average ~$90/ton in 2015, 21% below an earlier estimate.
    • Iron ore has dropped below $92 for the first time since 2012 as mining companies boost output, betting that rising exports to China would more than offset lower prices.
    • RIO -2.9%, CLF -2.8%, VALE -1.3%, BHP -1.2%, MT -1.2% premarket."

    I invite you to read this news release/article in its entirety, posted this morning at 7:45 by Bloomberg.
    Jun 12, 2014. 10:18 AM | Likes Like |Link to Comment
  • The Perfect Dividend Stock [View article]
    Hey, Old Guy,

    I'm an old guy too and I know exactly how you feel. Maybe you will find this article helpful.

    Best regards,
    Bob J
    Jun 11, 2014. 04:49 PM | Likes Like |Link to Comment
  • The Perfect Dividend Stock [View article]
    I cringe every time I see CLX on a list like this. I find their level of debt too high and also the payout ratio too high. Currently, they are also overpriced with a P/E of over 21.
    Jun 11, 2014. 10:28 AM | 2 Likes Like |Link to Comment
  • The Great Correction Of 2014? Don't Drink The Kool-Aid [View article]

    I appreciate the thoughtful article, and it made me not only think, but do a little research.

    I believe the current P/E of the S&P 500 is about 19.5

    "Current S&P 500 PE Ratio: 19.47 -0.00 (-0.02%)
    4:31 pm EDT, Tue Jun 10

    Mean: 15.51
    Median: 14.55
    Min: 5.31 (Dec 1917)
    Max: 123.79 (May 2009)

    Price to earnings ratio, based on trailing twelve month “as reported” earnings."

    To me, that indicates the market is a little overpriced. Regardless, the market will act like the market, and for whatever reasons there will no doubt be a correction.

    "Stay the course". Famous words from John Bogle are now part of the Vanguard mantra. The only problem I have applying that directive to many of todays investors, is that they may not be on the right course, certainly not one that Bogle would approve of.

    I believe that many investors are now in 100% equities. In addition, many are invested very heavily in S&P firms, mostly large cap stocks, all American issues. This makes these investors the most susceptible to a correction in the market. Their portfolios are unbuffered by the stabilizing power of bonds and the diversity of international holdings. Bogle never advocated that.

    I believe it is prudent to unhook one's portfolio of investments from the narrowness of the cap weighted major indexes. What I believe is prudent is what I have been doing with my portfolio since the beginning of this year. I now have more diversity and more bond holdings and today my daily gains and losses do not correlate closely with the major indexes.

    I know not what the future will bring but am better prepared for the eventual and inevitable corrections and market swings than I was a year ago.

    Keep us thinking, David.

    Best regards,
    Bob J
    Jun 11, 2014. 08:53 AM | 8 Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    Your points are noted.

    Best regards,
    Bob J
    Jun 11, 2014. 07:54 AM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    Thanks for the comment.

    Perhaps you are a "newb" not a "noob".

    "Newbs are those who are new to some task and are very beginner at it, possibly a little overconfident about it, but they are willing to learn and fix their errors to move out of that stage. n00bs, on the other hand, know little and have no will to learn any more." For a very complete definition, several pages, you might look at the Urban Dictionary.

    Coming attractions: Wait until Chinese officialdom finds out that a number of different borrowers are using the same pile of red dirt as collateral for loans. Joking, of course. And no, it is not true that the copper scandal will be 10 times as large. Nor is it a fact that China is going to sell all its US Treasuries and buy Africa. Just a lot of idle speculation, undoubtedly by n00bs.

    I encourage you to keep up your research and your thoughtful questions. At the end of the day the insights you gain will prove to be an important factor in your investing success.

    Best regards,
    Bob J
    Jun 11, 2014. 07:50 AM | Likes Like |Link to Comment
  • Vale Hit Hardest By Global Iron Ore Glut [View article]

    I appreciate your comment.

    I agree that there are some enticing quantitative metrics. How to factor those into valuation, in light of very ragged earnings and dividend performance, is difficult.

    One thing you can count on, I believe, is that Vale isn't going to go out of business or be bought out in a hostile takeover. The government of Brazil with its Golden Shares and ties to the Brazilian pension fund and Banking system assure that.

    Two other things you can count on: Brazil will remain further away from Asia than Australia is, at least $10 a tonne further away. Second, Vale's involvement with the Brazilian government will always mean that there are politicized aspects of Vale's management, some will work at cross purposes to corporate profits.

    I do not look further ahead than 3 years for payback on an investment. The residual returns are very uncertain after that, and discounted to today's value are small. Projections by the mining companies indicate very soft iron prices for 2015, 2016 and 2017. Therefore, I see no turnaround for Vale within my investment horizon.

    I do not pay too much attention to the stream of projections for IO prices and company profits by the sell side analysts. They seem to be ever changing. When I see a headline that says "Citibank sees IO prices for 2015 at $xxx", or "JPM finds profit ahead for Vale and maintains a Hold on the stock...", or ":Goldman says that...", I take little notice. I understand the mixed motivations of investment bankers.

    If one chooses to look further than three years ahead for value, I believe that an appropriate purchase price, considering the risks involved and the discounted value of 2018, 2019, 2010 earnings, should be less, perhaps much less, than a $12 selling price. I will qualify that by saying looking that far ahead for returns is not something I do, or know a whole lot about.

    Consider, I have been told that the amount of gold on the entire planet would fit into an Olympic sized swimming pool. Whether that is a fact or not, we can agree that gold is scarce. Iron, on the other hand, makes up 5% of the crust of the earth. Does anyone know how much high grade ore will be found in Africa during the next few years?

    Thank you also for the complement. I hope that my contributions add to the body of knowledge available at Seeking Alpha and provoke thoughtful deliberation. I strive to be accurate and conscientious in my articles and responses to comments. I am often right when I offer opinions, but certainly not always. Therefore, I respect those with well considered opposing views.

    Best regards,
    Bob J
    Jun 11, 2014. 07:27 AM | 1 Like Like |Link to Comment