Shares of mining giants are tumbling today after China revealed lousy economic data.
Shares of Brazil mining giant Vale (VALE) are down 1.8% today to $13.76, while shares of Rio Tinto (RIO) are down 1.5%. BHP Billeton (BHP) shares are off by 0.6%. Vale is more dependent on iron ore prices staying high than Rio Tinto.
Today, Cowen reiterated a Market Perform rating and a $16 price target on Vale, saying that while there’s much focus on the cost for Vale to expand its mines, investors may be ignoring the value of some new Vale projects. That was the conclusion after they visited Vale’s iron ore operations in Brazil last week, including a visit to Conceicao Itabiritos mine. Analysts Anthony B. Rizzuto, Jr., Novid Rassouli and Ryan Wentling write:
We visited the Conceicao mine and processing facilities, which are part of the Itabira complex. This site visit was a prime example of Vale utilizing technology and low-intensity capital expenditures to process lower-grade ores and increase production, extend reserve life, and improve product quality. We expect similar projects could drive improved realizations and higher brownfield production within the iron ore segment, helping to offset the effect of lower prices. Vale claims that the value added by high quality ore products is not linear and increases at an exponential rate. Vale’s products are generally high grade with low impurity levels. … China has made a strong push to reduce pollution levels, with Chinese Premier Li Keqiang even declaring a “War on Pollution”. We believe iron ore like Vale’s, with its high Fe grades and low impurities (especially sulfur) will remain in high demand by Chinese steel mills. This high quality ore generally allows for reduced coking coal consumption, leading to lower pollution levels.
Source: http://blogs.barrons.com/