BrazilIan mining giant Vale SA (VALE) has now partnered with China’s Zhoushan Port Company Ltd in a ‘strategic logistics alliance’, Reuters reports, citing a securities filing. China is the world’s largest iron ore importer.
Together, Vale and Zhoushan Port Company Ltd will build and operate Project West III in the port of Shulanghu.
According to Reuters, Vale will take 50% of the joint venture, and says that the port project expansion will require multi-annual investments of about $624 million.
At the same time the filing also revealed that both the companies intent to to obtain financing for up to 65% of the project.
Specifically, the project will include expanding the facilities at the Shulanghu Port, developing a storage yard and loading berths with an additional capacity of 20 millions of metric tones per year (MTPa).
For Vale, the project will grant it a total port capacity of 40Mtpa in Shulanghu- thereby optimizing costs in its value chain, says Reuters, which refers to the filing.
Shares in Vale are down 15% year-to-date, but the stock scores a notably bullish Strong Buy Street consensus. That’s with 7 buy ratings vs just 1 hold rating. The $17 average analyst price target indicates 50% upside potential from current levels.
“VALE screens inexpensive at 2.3x our base case 2021E EV/EBITDA. Further cash returns into what remains a robust iron ore market should catalyse a re-rating” comments RBC Capital analyst Tyler Broda.
He has a buy rating on the Vale with a $19 price target (70% upside potential), explaining that management recently reiterated that expected final liabilities from the Brumadinho dam disaster are sufficiently covered by the current provisioning.
However he noted that a final settlement may now take time to be agreed with some prosecutors taking a harder line than the state and courts which have largely agreed.
“This agreement takes less precedence for the investment case in our view now that VALE has restarted its dividend payments” Broda argued. (See VALE stock analysis on TipRanks)
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