The jousting over iron ore prices between Brazil's Vale (NYSE: VALE), Anglo-Australian Rio Tinto (NYSE: RIO), and BHP Billiton (NYSE: BHP) -- the three biggest producers of the key ingredient in steel manufacturing -- and their expanding Chinese customer base has been worth the price of admission.
With ore prices bobbing about like a cork in a storm -- or a tsunami, if you'd like -- it's been a tough assignment for investors to zero in on the best play among the trio of suppliers. But help appears to have arrived: With hardnosed but capable Roger Agnelli having been summarily dislodged after a decade at the helm of the Rio de Janeiro-based Vale, my inclination is to watch the company, but not to build a position, at least for a while.
Was Agnelli inept in his performance? Not if you consider that under his stewardship Vale became the world's second-biggest mining company (after BHP) on a market cap basis. It also earned a whopping $17.3 billion in 2010. But Agnelli committed an unforgivable sin in Brazil: He generally didn't give in to the demands of the government of Luiz Inacio Lula da Silva, until recently Brazil's president.
Lula, as his closest friends call him, was replaced at the beginning of this year by now-President Dilma Rousseff, who pushed Agnelli aside in favor of Murilo Ferreira, whom she had known when she served as energy minister and he was a Vale executive.
Agnelli's specific transgression apparently boiled down to placing his company's best interests ahead of those of the government. For instance, he resisted pressure to invest heavily in a hydroelectric dam, the design of which would have prevented it from ever turning a profit.
Ferreira, however, is no stranger to Vale, having served the company for 10 years, starting in 1998, when he signed on as director of its aluminum businesses. He later was posted to Canada, when he headed the company's unit there.
To indicate the importance of keeping government-types happy in Brazil, Jose Sergio Gabrielli, the CEO of Petrobras (NYSE: PBR), Brazil's biggest company, has walked the straight and narrow from the government's perspective. For instance, he agreed to benefit the local economy by building drilling rigs in Brazil, despite higher costs than he could have negotiated elsewhere. Beyond that, he's obviously gotten on well with foreign operators, from ExxonMobil (NYSE: XOM) on down. That carries over to the oilfield services group, such as Diamond Offshore (NYSE: DO), which now has 15 of its 47 rigs working off Brazil's shores.
It's too early to tell what Vale's course might be under Ferreira. Nevertheless, until that issue becomes clearer, I'd urge Fools to watch Vale and direct their mining investments toward BHP. That's especially the case since, given escalating oil prices, the Australian company is the only major miner with an active international energy unit.
