Bloomberg News

MMX, Vale Fall as Morgan Stanley Cuts Recommendations

October 03, 2011

(Updates with closing share prices in second and final paragraphs.)

Oct. 3 (Bloomberg) -- MMX Mineracao & Metalicos SA fell the most in eight weeks after the iron-ore producer controlled by Brazilian billionaire Eike Batista was cut to “equal-weight” from “overweight” at Morgan Stanley. Vale SA also fell after an identical cut by the bank.

Shares of Rio de Janeiro-based MMX dropped 7.7 percent to 6.51 reais at the 4:15 p.m. New York time close. That was the most since Aug. 8 and the largest decline on Brazil’s benchmark Bovespa index, which dropped 2.9 percent.

The possibility of a global recession will continue to damp prices for equities and commodities, Morgan Stanley analysts including Carlos de Alba wrote in a note to clients dated yesterday.

“We still expect MMX to deliver on its ambitious growth plans, but we are moving to equal-weight as we think investors will not buy into a growth story now,” the Morgan Stanley analysts wrote. “We remain constructive on iron ore fundamentals, and would expect to revisit our views on the shares when macro conditions improve.”

The analysts also cut the recommendation of Vale, the world’s largest iron-ore producer, to “equal-weight” from “overweight,” saying the shares may remain depressed until the macroeconomic environment improves. Rising mining royalties in Brazil and pending tax issues will also continue overhanging Vale, the analysts wrote.

“We are not positive on the mining sector,” said Carlos Camacho, who helps manage the equivalent of about $2.1 billion at GAP Asset Management in Rio de Janeiro and doesn’t hold shares of Vale or MMX. “Iron-ore prices haven’t yet fallen as significantly as copper and nickel did, so there is a chance they fall a bit further. We’d rather stay outside of the sector.”

Vale fell 2.5 percent to 38.25 reais, the lowest since Aug. 22. The shares have lost 21 percent during 2011, less than the Bovespa’s 27 percent decline.

--Editors: Brendan Walsh, Glenn J. Kalinoski

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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