April 12, 2010
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 April 12, 2010

Dear Friend,

  • Four specific “victories” benefit Vale.  First, with BHP Billiton and Rio Tinto “running full,” Vale owns over 80 mmt of idle iron ore capacity to enjoy the preponderance of the global volume rebound.  Second, iron ore prices rose 80%-90% almost to $100 per tonne.  Third, “quarterly” pricing gives more opportunity to raise benchmarks closer to recent $160 spot prices as opposed to the mid-2008 benchmark peak near $80 when spot was > $200.  Fourth, LME nickel prices near $11.40 per lb are  > than our $9 long-term forecast, and favorable variances both in price and volume will create huge benefits to Vale especially as 4 idle mines contribute eventually - - Onca Puma, Goro, Sudbury and Voisey’s Bay.  Over 300 mm incremental lbs should contribute over $2 billion pretax at current nickel and coproduct prices. 
  • For these reasons we raised our price target to $55 from $44 per share, and this may remain conservative as several commodities prices exceed our long-term estimates much like nickel.
Our 30+ page weekly review of spot markets with a couple pages on each major commodity also is attached.   We update various data series each weekend that we need to watch closely to stay in the game.
 
We cut earnings estimates for Worthington Industries owing to weaknesses in several end markets.  It is not benefiting as much as in the past from rising steel input price "inventory" gains.
 
We pre-recorded a morning conference call this morning prior to my 6 am train to airport reviewing our Vale price target increase, improving aluminum market outlooks with the world economy and Alcoa earnings report tonight.   We will not have a morning call on Thursday as I will be in remote portions of Chihuahua province of Mexcio.
 
I will be travelling to gold and silver mines in Mexico this week visiting Goldcorp, Agnico-Eagle, Gammon Gold, Paramount Gold and possibly one or two others.  Joe, Mick, Skip and Alicia will tend the office, and I should be reachable via email and my cellular phone.  
 
John C. Tumazos
Copyright © 2008 John Tumazos Very Independent Research, LLC
Send mail to joe@veryindependentresearch.com with questions or comments about this web site.
Last modified: 05/25/11

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