Vale's Shining Ever Brighter

• Email
• Share
• Print

Never let it be said that the mining sector is about to stop sparkling. Indeed, just a quick look at the quarterly results of Brazil's Vale (NYSE: RIO) indicates that its shine is only likely to brighten.

For the quarter, the big Rio de Janeiro-based metals producer earned $5.01 billion, up 22.3% from the same quarter of 2007. Beyond that, the company's operating strength was indicated by earnings before interest and taxes (EBIT) that were up 19.5% year over year.

As the world's biggest producer of iron ore -- it shipped a record 78.9 million tons in the quarter, up 7.9% from a year ago -- Vale, like other producers, has benefited from the voracious appetite of Chinese steelmakers for the mineral. Iron ore revenues have also been boosted by an agreement the company recently completed with China's Baosteel raising the price of ore fines 65% to 71%.

But Rio isn't resting on its major mining laurels. During the quarter, for instance, its Paragominas II bauxite mine came online, as did two additional stages of its Alunorte alumina refinery. Both are located in the Brazilian state of Par. And to be certain that its deliveries to China are made on a timely and dependable basis, the company recently ordered a dozen of the largest class of ore carriers from a Chinese yard.

Then there's the notion that, in addition to its organic growth, Vale retains an appetite for significant acquisitions. It recently tried and failed to acquire the big Swiss mining company Xstrata -- which itself has just offered $10 billion for South African platinum producer Lonmin. But with its coffers having been expanded by a recent offering, don't be surprised if Vale becomes enamored of another target. Copper, gold, and molybdenum producer Freeport-McMoRan (NYSE: FCX) and big aluminum producer Alcoa (NYSE: AA) are names that frequently cross folks' lips.

So it appears that Vale presents the double-barrel prospect of steady organic growth, along with the potential that it'll tie into a substantial acquisition or two. And, even better, both of these opportunities ride atop a voracious global demand for the company's minerals.

In the course of rating Vale five stars, more than 5,000 Foolish CAPS players are betting that Rio will outperform the market. Where do you stand?   

Related Foolishness:

• Another Major Mining Marriage?
• No Vale of Tears Here
• Freeport-McMoRan: Solid Gold?