Bloomberg News

Vale Jumps Most in Ten Months After $3 Billion Buy Back Plan

July 01, 2011

(Updates share prices in second paragraph.)

July 1 (Bloomberg) -- Vale SA, the world’s largest iron-ore producer, rose the most in ten months in Sao Paulo after saying it will buy back as much as $3 billion of its shares.

The stock rose as much as 4.5 percent, the biggest gain since Sept. 1, to a two-month high of 46.63 reais and was trading at 46.46 reais as of 3:22 p.m. New York time.

Vale, based in Rio de Janeiro, plans to repurchase as many as 84.8 million common shares and 102.2 million preferred shares within a 180-day period, it said in a regulatory filing late yesterday. The company is joining rivals BHP Billiton Ltd. and Rio Tinto Group in returning capital to shareholders and will cancel the repurchased shares once the program expires.

Investors are pressing mining companies to boost returns after rising iron-ore, coal and copper prices increased profits. BHP, the world’s largest mining company, completed a $10 billion share buyback yesterday, six months ahead of schedule, while Rio Tinto, the second-largest iron-ore producer, raised its dividend by 40 percent and announced a buyback plan this year after reporting record profit for 2010.

Vale “is coming out to the market with a clear signal that its shares are undervalued,” Leonardo Correa, an equity analyst at Barclays Capital in Sao Paulo, said in a note to investors. “Management demonstrates it is positive on the cycle and does not expect a hard landing in cash flow generation going forward.”

Returning Capital

The stock has dropped about 4.1 percent this year, less than the 8.5 percent decline in the benchmark Bovespa index. Rio Tinto’s London-listed stock gained 1 percent in the period, while Melbourne-based BHP has lost 3.3 percent through today.

Vale, which posted a record profit of $6.83 billion in the first quarter, is forecast to report a 54 percent jump in profit for the full year on an adjusted basis, according to the average of seven analysts’ estimates compiled by Bloomberg. The company will maintain its record $24 billion spending plan for this year, newly appointed Chief Executive Officer Murilo Ferreira said May 20.

“The share repurchase is an important tool for returning capital to shareholders, helping to improve the capital allocation and hence maximizing shareholders’ value,” Vale said in the statement.

Vale will buy the shares at market prices through seven financial institutions including Banco Bradesco SA, Itau Unibanco Holding SA, Banco Santander SA and JPMorgan Chase & Co., according to the filing.

The announcement follows a previous $2 billion stock buyback disclosed by Vale on Sept. 23. The company may distribute at least $5 billion in dividends in 2011, with a possible additional extraordinary dividend to be announced in October, according to Barclays’ Correa.

--With assistance from Helder Marinho in Sao Paulo. Editors: Dale Crofts, Jessica Brice

To contact the reporters on this story: Juan Pablo Spinetto in London at jspinetto@bloomberg.net; Soraya Permatasari in Melbourne at soraya@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net


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