Vale: Still No Acquisition, But Flush With Cash

by: FP Trading Desk October 15, 2008 | about stocks: AA / FCX / RIO    

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When Brazilian mining giant Vale (RIO) raised $11.5-billion in a share offering over the summer, the assumption of many investors was that the company would use it for a big acquisition.

There is no sign of that yet. On Sunday, however, Vale announced a plan to buy back as many as 69.9 million common shares and 169.2 million preferred shares. That would equate to a total spend of about $5.2-billion at current prices, according to BMO Capital Markets analyst Tony Robson.

In a note to clients, Mr. Robson wrote that the buyback announcement signals two things: that the company has excess cash flow, and that it does not plan to make a substantial acquisition (of $20-billion or more) in the coming year. There were rumors over the summer that Vale was interested in Alcoa Inc. (AA) or Freeport-McMoRan Copper & Gold Inc. (FCX).

Mr. Robson also noted that the buyback is a logical use of Vale's cash, as the company's stock was recently trading at a level as low as 40% of his net present value estimate. Like many other mining companies, Vale's stock has been decimated in the current commodity downturn.

"BMO ranks Vale as one of its most attractive diversified resource stocks due to a solid balance sheet and strong cash generation," Mr. Robson wrote.

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This article has 2 comments:

  •  
    Oct 15 10:15 PM
    Bought it **again** this morning, only to lose some in the last hour selloff... This is ridiculously cheap.. Well, until I get stopped out again..

    jegan ;-)
    Reply | Link to Comment
  •  
    Oct 16 11:17 AM
    What this country needs is a viable third party.
    The Republicans and the Democrats are useless.

    Daniel Kowkabany
    Reply | Link to Comment
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