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dkny2 Comments (4)
 
so we are upon the levels whereby Chinese Iron Ore producers (20% Iron Ore content vs. Aussie 55+% content) will be shuttingh capacity. Furthermore, shipping rates are now exteremely low. Taken together, this seems a siren call for long term value investors to BUY the like of RIO and ignore the panic commentary on Iron Ore breaking $100. Of course, hard landing China / Bearsih Macro Economic prognosticators need not apply.
24 Aug 2012, 03:07 PM Reply Like

Herr Hansa Comments (2902)
 
May be a good signal for increased iron ore exports out of Brazil, which would lift VALE revenues a bit. I'll continue watching movements of those Valemax ships to see if anything develops.
24 Aug 2012, 03:53 PM Reply Like

Caiman Valores Comments (1108)
 
There has to be some value coming in at some point and the negative sentiment this will drive might just create some buying opportunities. I like Vale but I think it is going to go lower with high capex combined with the issues with its phosphate business, the unresolved tax case, rising political risk in Brazil and significant issues relating to effective execution of its growth strategy.
25 Aug 2012, 03:31 AM Reply Like

sreimer77 Comments (191)
 
Vale is required to pay 25% of profits out as dividends. That is what the law says. Giving it is going ex-dividend in mid-October supporting what is now a 7% yield and semi-annual payments, how much lower can it go? They've bought 200Million outstanding shares over the past year, have a net cash position of over 11Billion and it is trading at book value, while still generating over 15 Billion a year of which are from estimates that have already been reduced by over 25%.

Seems like a buy to me!
29 Aug 2012, 10:29 AM Reply Like

Herr Hansa Comments (2902)
 
Increased my holdings in VALE today. At this point I am going to wait and watch the macro environment first. I'm not looking for a quick gain, and this is a long term holding. More cautious investors may want to wait longer.
29 Aug 2012, 04:14 PM Reply Like

Caiman Valores Comments (1108)
 
sreimer that is correct the Brazilian law obliges Brazilian companies to pay 25% of net profit as dividends. But where they make a loss they are not obliged to pay dividends. Also a large portion of Vale's dividend payments are made as interest on shareholder equity (ISE) payments and they are not obliged to make these payments. But they can make them in preference to dividend payments. The incentive for a company to pay ISE is because they can offset against the company's tax. It is likely that at current iron ore prices the dividend yield will halve.

In the 2Q12 earnings call management were evasive on a number of issues including whether capex will be reviewed and reduced. Any reduction in capex will be a costly excerise that will also affect future profitability in an environment where iron ore prices are significantly lower.


The other issues are the tax dispute and royalties dispute. If Vale has an adverse finding against it for the tax dispute their cash won't cover it as the Brazilian government is seeking $15 bn. The royalties dispute which is to be settled in September is for $2 bn in additional royalties claimed by the government. If Vale has to pay the total amount it will effectively wipe out their cash holdings and either capex program of dividend payments.
30 Aug 2012, 07:31 PM Reply Like