BB reinforces purchase recommendation with new target price

Vale (VALE3): BB reinforces purchase recommendation with new target price
Iron ore. Photo: Disclosure Vale (VALE3)

BB Investimentos reinforced its purchase recommendation for Valley (VALE3), with a new target price of R$125 for next year.

In a report, the BB Investments explains that it has revised its financial model to incorporate the new Vale estimates, as well as recent results and new premises for the mining sector.

Last week, the “Analyst & Investor Tour”, the mining company’s annual event, took place, in which the company presented its strategies to prepare for the transformation of the steel industry in light of the trend of decarbonization of production chains. Vale also presented its updated recovery plan, to reach production capacity of 400 Mtpy.

According to the report, the highlight of the event was the dissemination of the briquette green, developed by Vale over the last 20 years. Green briquette, according to the document, “is a flexible material in terms of iron content, with the potential to replace pellets, sintering and granulates”, in addition to having a lower production cost.

“In our view, the announcement was very positive, showing that, in addition to seeking to regain global leadership in volumes, the company took a concrete step towards positioning itself as a leader in the low-carbon iron ore market, to increase its competitiveness and ensure the perpetuity of business in the face of the transformation of the steel industry and production chains in the future”, assesses the bank about Vale’s new product.

Vale also informed at the event that it is building a plant in Vargem Grande, Minas Gerais, to intensify the use of dry concentration technology, which does not require the use of water in the production process, nor of dams for waste disposal.

“In addition to the environmental advantages, by reducing the use of water and increasing the safety of operations, the method enables the production of products with a high iron content, also contributing to the decarbonization of the steel industry”, observes the bank.

The plant being built should start operating in 2023, with a capacity of 1.5 Mtpy and an estimated investment of US$ 125 million to 150 million.

Recovery of productive capacity

Vale also reiterated its estimate of iron ore production for this year, which is between 315 and 335 Mt, and also reinforced its installed capacity forecast. But the mining company changed the schedule of recovery for the next few years.

The report highlights that the previous projection was to return to the 400 Mtpy level (production capacity prior to the Brumadinho accident) at the end of 2022 — but the new expectation is 370 Mtpy in 2022, to reach 400 Mtpy the following year. Vale stated that the schedule revision took place to reflect delays in obtaining licenses.

“Although we recognize that the company continues to present important evolutions on the way to recovering the level of its operations, we remain attentive to the progress of the schedule. The resumption of 400 Mtpy is long awaited by the market as, in addition to bringing the world leadership back to Vale, it will have a direct impact on the global supply of iron ore, influencing the sector’s dynamics and, consequently, the commodity prices in the medium term”, states BB.

Vale’s dividends

The bank commented on the Vale’s earnings, and sees that the mining company continues to consolidate itself among the largest dividend-paying companies on the São Paulo Stock Exchange (B3). In 2021, the mining company disbursed US$ 6.2 billion in earnings.

Later this month, the company should announce the payment of at least US$ 5.3 billion, referring to the first half of this year. The report emphasizes that, together, the values ​​represent about $2.28 per share, and equate to a yield of about 12.7%.

Until last month, Vale disbursed US$ 4 billion to repurchase shares. “We believe that, with the recent drop in prices, the company will be able to carry out new buyback programs after the conclusion of the current program”, evaluates BB.

Vale’s Quotation

THE Valley (VALE3) ended today’s price at a drop of 0.71%, worth R$ 94.09. In the year, the paper of the mining company accumulates an increase of 7.59%, compared to closing at R$ 87.45 at the end of December 2020.