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Introduction:
Brazil-based Vale, is the world’s largest iron ore producer and is #2 in the nickel mining business. Vale has a market share of about 35% in the whole mining and resources sector. The company maintains and develops a large part of the value chain, from geological prospecting and searching, exploration, and the transport of bulk material to foundries. Its principal clients are in China.

Vale is active in what is probably one of the more difficult business areas. A recent report from the British think tank Chatham House stresses the important challenges the sector has to overcome in the coming years. Apart from the fundamental fight over the ownership of resources, the industry is exposed to rapid changes in demand from emerging markets. Price volatility is expected to be amplified by higher prices for electricity, oil and gas, higher standards for socially responsible companies, and finally, higher social requirements of its employees. More importantly, for a number of resources, half of the world’s available deposits have been mined and the remaining reserves are in remote areas, or in areas of political instability. To access these resources, exceptional technologies and equipment are required, which can only be provided by financially solid companies. 

A period of poor management lasting until 2011 has resulted in a number of write-downs and capital dis-investments, mainly outside the iron ore business. While the benefits from cost-cutting will be visible fairly quickly, more meaningful developments in Vale’s core business will need to wait for a number of quarters.

As its in-house driven restructuring program starts to take grip and because of falling iron ore and aluminum prices, Vale has recently written-off most of its nickel and aluminum portfolio; this resulted in a value adjustment of USD 4.2 billion. Furthermore, it has corrected the book value of its participation in Norsk Hydro by USD 1.3 billion. In total, Vale has now written-off participations, holdings and other items in the value of USD 5.7 billion. 

Strengths and weaknesses analysis / Fundamental analysis 
Strengths:

• Vale has first-mover advantage in the iron ore sector restructuring process,
• Vale has a weather related cost advantage over its rivals,  
• The new management has stated that it will focus on better aligning the company’s capital and resource management. Management is keen to organically develop the most valuable iron ore franchise world-wide,
• Despite the impressive cost inflation for development, exploration and transport, Vale’s assets still produce at about USD 38 per ton (covering mining and transport costs to the exporting harbor). This is among the cheapest in the world.   

Weaknesses:

• Vale was privatized in 1997, however links to the government still exist and the government influences the company’s direction, directly or indirectly, to a significant extent,
• Because Vale is much less diversified than other competitors it suffers more from economic cycles, 
• Even with the development and deploying of its own mega-bulk carriers, Vale remains disadvantaged compared with Australian iron ore producers. The two principal reasons for this are: a) the lack of port infrastructure in China to handle such shipments, and b) politically speaking Australia maintains a closer relationship with China than Brazil.       

Investment opportunity / Portfolio management 
Operational risks: High 
Expected growth: Below average
Investment orientation:   Group “Best-in-Class” investment theme: Emerging Market E