Is Vale S.A. a Good Investment?

OVERVIEW

Vale S.A. is a multinational mining company headquartered in Brazil. They mine coal, iron, gold, copper, nickel, manganese, coal, and several other metals and natural resources. They offer logistics solutions to transport these materials all around the world through locomotives as well as ships.

Why You Should?

  1. Vale is the largest producer of iron ore in the world. This metal is essential for building products and a strong economy causes the demand for iron ore to rise. The other metals that they mine are also widely used to make several essential products (from houses to cars). This will benefit the company in the future.
  2. Vale operates in Brazil, Canada, China, Mozambique, New Caledonia, Oman, and many others. They also own logistics services which they operate through ships and trains. This well-connected global supply chain will benefit the company’s future growth.

Why You Should Not?

  1. Vale faces competition in an industry that is extremely price drive. Some companies include Cleveland-Cliffs Inc, BHP Group, Newmont Mining, and many others. However, with Vale’s vast mining operations, they are definitely one of the top companies in the mining space.
  2. Because of Vale’s global operations, they will be negatively impacted by trade tensions that are taking place in the world. For example, Vale has no operation in the United States and current trade tensions will negatively impact the company’s sales in the US.
  3. The COVID-19 Pandemic has decimated economies around the world. This has negatively impacted aspects of Vale’s business (coal and iron) which rely on a strong economy to produce strong sales. This will negatively impact the company until global economies return to normal.
  4. Due to the company being exposed to global economies, several countries can pressure the company in negative ways. For example, the Brazilian government has blocked several of the company’s assets due to Vale’s environmental and operational issues. This uncertainty will hurt the company in the future.
  5. Vale has had several environmental and operational issues that have hurt the company’s bottom line. They have had 2 dam disasters (one in 2015 and another in 2019) where mine waste has overwhelmed communities in the area. Other dams will need to be repaired as the company reports weak safety levels. This has hurt the company’s bottom line in the past financial year. In the financial year of 2019, the company reported revenues of around 148.7 billion and a loss of around 6.7 billion. In the financial year of 2018, the company reported lower revenues of around 135.5 billion and profits of around 25.5 billion.

MY OPINION

In my opinion, Vale might not be the best company to invest in due to weak profits because of operational and environmental issues. There are better mining companies to invest in. However, if you bet that this company will rise again, Vale is a large mining company with upside because of its presence in several countries with a strong logistics service to back it up.

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Aaditya Patel

Aaditya Patel

Aaditya Patel is a writer who publishes analysis on companies publicly traded on the NYSE. Follow him @the_investing787 on Instagram for summary posts.